This is the third installment in “The New Normal,” a multistory Inman series exploring what’s returning to normal after the pandemic fades and what will never be the same. Don’t miss part 1, What if the brokerage of the future isn’t a brokerage at all? and part 2, What if real estate agents never go back to the office? And check back tomorrow for the fourth installment.
The war is playing out in viral TikTok videos. It’s happening in lawsuits and in opinion pieces. It’s driving discussions with hundreds and hundreds of people weighing in via online real estate forums.
Which is to say, agent pay is one of the most contentious topics in real estate right now.
Typically, the debate around agent pay focuses on commissions. That is, after all, the target of the various lawsuits, as well as one of the more common financial questions agents and clients butt heads on. It’s a supremely important issue, and one that as much as anything else shapes the way the housing industry functions.
In an effort to better understand what the future of agent pay holds, Inman reached out to a number of industry leaders and analysts. And the takeaway from these conversations was that commissions are an important piece of the pie.
But, significantly, they’re just that: a single slice of a financial pie that is growing more and more diverse. In other words, the new normal when it comes to agent pay may ultimately, and increasingly, involve a diverse group of income streams that come from stocks and profit sharing.
Inman has covered the issues impacting agent commissions at length. The very high level summary of what’s going on is that a number of disruptive forces have converged in recent years to exert pressure on commissions. For example, multiple consumer lawsuits have alleged that the way agents typically share and structure commissions amounts to price fixing and is anticompetitive.
Back in 2018, Alex Rampell — an influential venture capitalist at firm Andreessen Horowitz — also made a similar argument, saying during a presentation that agents “rip you off and try to make this the most anticompetitive industry possible.”
The idea here is that some consumers and tech disruptors have their sights fixed on the commission model.
On the other hand, industry members themselves have mounted a spirited defense of their business. For instance in March, National Association of Realtors President Charlie Oppler argued that those attacking the commission structure “are cloaking their true intentions in misleading claims of consumerism.”
He went on to say that the current commission structure “ensures greater equity and equality for first-time, low-income and many other homebuyers who otherwise couldn’t afford a home and professional representation.”
“If buyers had no choice but to pay an out-of-pocket commission to their agent at closing in addition to the price of the home, it would increase their costs and as a result, freeze out of the market many first-time and other buyers,” Oppler said.
The point here is not to re-litigate the ongoing battles over commissions, but merely to point out that they’ve been going on for years and are likely to continue for years to come.
It’s also worth noting that there has been some downward pressure on commissions, though not a massive amount. According to a March report from ranking and analytics firm Real Trends, the average national commission rate in the U.S. fell this year to between 4.9 and 4.94 percent. That’s down from 5.40 percent in 2012. The report ultimately concluded that commissions have “been consistently falling for years.”
All of which is to say that the new normal when it comes to commissions is probably a continuing debate about how they should function, as well as some moderate — but not apocalyptic — downward pressure.
Though the debate about commissions often sucks up all the air in the room, the reality is that alternative revenue streams are becoming more and more important to agents. And there’s probably no buzzier stream right now than stocks.
A number of companies have been pioneering this approach in recent years, including Real, a virtual brokerage that Tamir Poleg founded in 2014. Poleg — today the CEO of Real — told Inman his company began offering stocks to agents in 2017, and said the program has since become a major reason that agents join Real, which currently operates in 30 states. Poleg sees real estate stock programs as sustainable, and a growing selling point to agents generally.
“It’s definitely an attraction point,” he said.
Real officially went public last August, when it started selling shares on the OTCQX Market. In April, it filed to begin selling shares on the Nasdaq.
That trajectory offers a useful case study in how agents can potentially make a lot of money: Join a company before it goes public, get shares in the company, then sell those shares for a handsome profit after the company holds an initial public offering. This is exactly the strategy that tech workers often lean on, and which has famously filled Silicon Valley with multitudes of 20-something millionaires.
What’s significant, however, is that companies like Real have opened this option up to people other than tech workers, including real estate agents.
“If you’re an agent and you join a certain company at a certain stage,” Poleg added, “at one point that equity can be worth hundreds of thousands of dollars.”
Of course, Real is far from the only brokerage pursuing this option.
Most famously, eXp Realty began selling shares in 2018, and Compass debuted on the stock market in April. Both companies offer shares to their agents, and have been able to expand rapidly at the same time.
In the case of eXp, multiple team leaders who recently have decamped from other brokerages to the virtual upstart have cited the stock options as a major factor in their decision. In April, Michael Perry told Inman he moved his 53-person Salt Lake City team from Keller Williams to eXp in part due to the latter company’s revenue sharing options — which let agents get paid even when they aren’t selling houses.
“I don’t think there’s another company in real estate that can benefit the agent as much as eXp does,” he said. “You can sell houses and get stock.”
Mike DelPrete, a real estate analyst and consultant, has specifically pointed to eXp and Compass as two companies with the most significant and fast-growing business models in the industry right now. And he told Inman the two companies’ growth largely boils down to the idea that “agents can make more money with Compass and eXp.”
“Whether they’re public, or private and about to go public, they can dangle stock options in front of agents,” he explained. “It’s just another mechanism for agents to make more money with those companies.”
There is a flip side to this: Over the last several months most real estate companies — including eXp, Real, Compass and others — have all seen their stock prices fall. Agents who hold eXp stock, for instance, have seen the value of their shares drop by more than 64 percent. These changes highlight how stock-based compensation can be fickle; as generations of tech workers have learned, you might get rich or you might get burned.
But even with the risks, the new normal when it comes to agent compensation appears to look more like the tech world than ever before, with growing numbers of agents likely weighing whatever commission split the might get against the prospect of much bigger gains from soaring stock prices.
“I think the awareness toward the power of equity is definitely growing,” Poleg ultimately concluded.
The other big slice of the pie when it comes to future agent compensation is revenue sharing. This is an old idea; Keller Williams has been sharing its profits with agents for years, and between 1997 through Jan. 31, 2020 the company dispensed $1.4 billion through the program.
But new companies have moved to be even more aggressive with their own offerings. Glenn Sanford, for example, founded eXp after leaving Keller Williams, where he was not particularly satisfied with his take even after recruiting 184 people to his profit-sharing group.
“You would think that would be meaningful, but my 1099 in 2007 was about $6,000,” Sanford said at Inman Connect Las Vegas in 2019. “For me, that didn’t work.”
Today, eXp gives agents a percentage of the commission that the agents they recruit earn. And along with stocks, this program has been a major selling point among the teams that have joined the brokerage.
Jonathan Lahey moved his 21-agent RE/MAX team to eXp in April. Lahey began considering a move after seeing many of his colleagues and role models join eXp, but he recounted to Inman that the final straw came when a solo agent told him she made $4 million via the company’s revenue sharing program.
“My jaw dropped,” Lahey said.
Russ Cofano — currently chief operating and strategy officer for title company NexTitle, and previously president and general counsel of eXp — suggested the experience Lahey described is fairly common.
“Agents don’t go to eXp because of the [virtual world]” he explained. That’s not the draw. What is the draw is the split, the cap, the stock awards and the revenue share.”
Revenue share can take other forms as well.
Vija Williams, director of growth for the Ben Kinney Companies, told Inman that her agents can buy into the firm’s mortgage and title companies. Doing so turns them into investors — much as people like Rampell buy into companies, only at a smaller scale — and means they get to share in the profits of those companies.
“You’re essentially selling shares in ancillary services to key agents in your office,” Williams explained. “So they own a share in the company. It’s a win-win for everybody. It’s one of the most exciting things we’re doing.”
Structurally, the approach Williams was describing works differently than the revenue sharing programs offered by companies like eXp and Keller Williams. But in a broad philosophical sense, they’re similar in that they diversify agents’ incomes by giving them a stake in the company revenue.
This kind of thing also isn’t likely to go away any time soon. While every real estate firm won’t be eXp or Ben Kinney Companies or Keller Williams, increasingly agents are operating in a world in which the new normal means somehow sharing in the profits their company generates. There are more pieces of the revenue pie, in other words, and agents are looking harder at what options they have.
“Creating financial opportunities,” Poleg ultimately concluded, “is something agents are starting to consider when they choose their brokerage.”