Trends 2023: What the future could hold for agent and broker pay
The government and courts are taking a hard look at how agents and brokers get paid. What are some changes that this intense scrutiny could trigger?
Editor's note: Since 2006, the Swanepoel Trends Report has provided in-depth research and analysis to help leaders understand the forces shaping residential real estate. This exclusive series of excerpts highlights each trend featured in the 2023 report.
Evaluating Real Estate's Compensation Structure and Its Future. The government and courts are taking a hard look at how agents and brokers get paid. And with commissions collectively adding up to more than $100 billion per year, any nationwide shifts would have a seismic impact. This excerpt offers a closer look at some possible outcomes, with a deeper dive into broker compensation specifically.
The US federal government regulators and large class-action lawsuits have their sights set squarely on the real estate brokerage industry's current compensation structure. NAR, MLSs and brokerage companies have made some changes, but the scrutiny continues on elements that have not.
Of course, a variety of instigating factors and outcomes are possible. Some of the potential actions that could spark changes in the structure include:
The FTC: The FTC issues a rule prohibiting NAR from requiring that listing brokers offer compensation to buyer brokers.
Lawsuits: Plaintiffs in any of the lawsuits prevail and the court issues an order prohibiting NAR MLS rules from requiring the sharing of compensation.
NAR: NAR could change its MLS policy without being compelled to no longer require listing brokers to offer co-brokerage compensation in affiliated MLSs and clarify guidelines for Realtors about the ability for buyers and buyers' agents to set and negotiate compensation.
MLSs: MLSs themselves decide to remove the requirement for offers of compensation, resulting in buyers paying their own buyer agents directly.
Government-sponsored enterprises: It's not clear that mortgage lenders or GSEs Fannie Mae and Freddie Mac would permit buyers to finance brokerage fees they pay directly to their buyer brokers as part of their mortgage. Or they could allow buyers to request that sellers cover all or a portion of buyer broker compensation as a concession in the purchase agreement. They could adopt policies that overtly allow one or both of these.
Potential Changes to Broker Compensation
New Buyer Agency Services and Compensation Models: If buyers recognize they hire and pay their broker and agent directly, they may focus much more on service quality, what they pay and what they receive. This could also prompt some buyer agents to introduce new offerings, such as a monthly retainer, hourly rate and potentially a success fee, similar to how other professional services work such as lawyers and accountants.
In addition, buyers may engage with buyer agents differently. They could pursue lower-cost agency options that give them speedy, simple access to home showings for one fee and more in-depth consultation and support for a higher fee.
Variable Buyer Broker Compensation: A decoupling of compensation could dramatically shift the buyer broker compensation for each listing, as more buyers would likely negotiate fee terms with their broker and agent, and these could result in great variances compared to buyer broker compensation as it exists today.
Good buyer brokers could command a higher fee for their superior service and experience. Newer, or less experienced agents could offer services at reduced fees more consistent with their experience level. The amount buyer brokers command could more closely reflect their skill and the benefits they bring a buyer (and their messaging and marketing), and not based on an amount locked in place by a listing agent and seller.
There may also be a greater divergence of fee levels, with the best, most experienced agents commanding higher fees, and newer or part time agents needing to offer low fees to earn business.
Market-Based Buyer and Listing Broker Compensation: In addition, listing and buyer broker compensation could more directly reflect market conditions. In a seller's market where listings are scarce and buyers clamber for a limited supply, listing agents might require less compensation as finding a buyer is easier. In that market, buyers face more competition and buyer's agents would have to work longer, harder and smarter to close a deal and could negotiate higher fees from buyers. The best buyer agents may command a premium for their superior services and skills.
A similar dynamic in reverse would apply to a buyer's market.
Digital and printed copies of the 2023 Swanepoel Trends Report are available for purchase at t3trends.com.
Disclaimer: The information presented in this chapter is not intended, and should not be regarded, as legal advice. Further, it is not advice for any brokerage, agent, or any other reader on business strategy, compensation structure, or fees charged to consumers.