Industry Decoded: The answer to brokerage growth? It’s no longer 'add agents'
Realtor membership went up a stunning 60% over the past decade, but declines are coming. It's time to talk about how to support the agents who stick around.
Thinking big about residential real estate success requires a big-picture perspective. Industry Decoded features industry experts who can enrich your understanding of issues affecting the industry as a whole.
Everyone is talking about the big themes in housing — mortgage rates, inventory, affordability, lack of new housing starts, recession fears — and for good reason. All of these, and more, work together to fuel our nation's housing market. And, the real estate brokerage industry pays keen attention to the market because its economic existence lives and dies on the ability to service that market demand.
But there is another change going on that may have as much, if not more, impact on how brokerage firms operate, at least in the near term.
Prior to the Great Recession, membership in the National Association of Realtors peaked in October of 2006 at 1,370,758. That number then began a precipitous fall and essentially bottomed out at around 1,000,000 by the end of 2012. From there, as the housing market recovered, so did industry participation. Over the last 10 years, Realtor membership increased every single year, topping out at 1,580,971 at the end of 2022 — an increase of nearly 60%, representing a period of growth that we had never seen before and will likely never see again.
So why is this important?
Over the last 30 days, three of the top publicly traded brokerage firms (Anywhere, eXp and Compass) released their Q4 earnings. We all expected that revenue and profits would be down as the market essentially put on the brakes in Q4. But I was looking for something else. I was interested in seeing how these firms were doing on agent count and specifically, the net agent growth rate.
Brokerage firms, especially publicly traded firms, are expected to grow revenue from quarter to quarter and from year to year. And top line revenue growth for a brokerage firm is essentially driven in one of two simple ways: increase the number of agents who bring more market share with them, or increase the market share of the agents already at the firm. When everything is clicking, both happen.
So, what did we see?
Anywhere's brokerage operations (Anywhere Advisors) showed a 4% agent gain YoY, mostly from Coldwell Banker. All of Anywhere's previous 2022 quarters showed at least 6% gains, with Q3 coming in at 9%.
With their reputation as growth engines, one might conclude that eXp and Compass would have bested Anywhere's net agent count growth rate, but that did not happen. eXp grew 1.52% and Compass less than 1%. In fact, while eXp (which has been the industry star in terms of agent growth) has continued to add agents, it has suffered significant growth rate declines in seven of the last eight quarters.
Is the slowdown in agent growth surprising? For me, no. While Anywhere is the venerable brokerage blue blood and relies on the stellar local market branding of Coldwell Banker to attract agents, both eXp and Compass grew into behemoth organizations in the very recent past. While each had very different growth strategies, I believe a big part of that growth was a jet stream powering an exploding industry that was adding hundreds of thousands to the overall addressable market of agents.
News alert: That tailwind has officially died. Early returns are telling us that we will see total Realtor membership declines for the first time in 10 years. It's typical for membership to drop from January to February (due to local association billing practices) and then start to increase in March as the Spring selling season kicks in. Notably, however, the 2023 January/February drop is four times the average drop we saw in 2020-2022. I expect that trend to continue — the market cannot economically support the number of agents presently competing for deals. And if brokerage firms are unable to create net agent growth through recruiting, what can they do to grow (or at least maintain) top line brokerage commission revenue?
Productivity training. In other words, help their current agents do more deals.
The challenge (isn't there always a challenge?) is that helping agents be more productive is not easy. The trend in recent years, especially with some of the larger firms, has been a technology arms race of sorts. Throw more tech tools at agents and they will surely close more deals. It's just not that simple. Technology is part of the answer but it's not the answer. And the mega trend of team growth has not made the process any easier, as team leaders want to control the productivity methods of their team members.
Some firms are using the same tired approaches from years past. Some would like to do more but don't have the resources. Many will see little benefit from their efforts.
I believe that in 2023 and beyond, smart brokerage firm leaders will understand that putting all of their eggs in the agent growth basket was yesterday's success formula. Going forward, they will marry human resources with technology resources to create a brokerage firm DNA that truly enables their agents to do more deals. Those firms, and the fortunate agents who associate with them, will in the long term not only survive, but win.
Russ Cofano is the CEO of Collabra Technology, which operates the digital marketing platform SphereBuilder™. He has more than 30 years of senior leadership experience in brokerage, technology, MLS, associations and affiliated businesses. Previous roles include president and general counsel of eXp World Holdings and SVP of industry relations at Move, Inc. The views expressed in this column are solely those of the author.