Thousands of New York City Airbnb listings are vanishing from the market as the city introduces some of the strictest regulations in the U.S. for short-term rentals.
Starting on Sept. 5, hosts of short-term rentals will need to register with the city, The Wall Street Journal reported. Airbnb hosts will have to meet several new requirements, including not renting out an entire apartment or home; and being present during guests’ short-term stays.
Airbnb estimates that 5,300 existing reservations would be affected during the first week of enforcement, according to an August legal filing. There are around 10,800 illegal short-term rentals across the city, per municipal government estimates.
New York City’s Short Term Rental registration Law took effect March 6, 2023. It prohibits rental companies like Airbnb, Vrbo and Booking.com from processing transactions for unregistered rentals.
Airbnb has called the rules a de facto ban on short-term rentals.
A ripple effect in other cities?
Some industry stakeholders believe other cities might follow suit. City councils in Dallas, Philadelphia and New Orleans have passed their own restrictions on short-term rentals.
There are about 38,500 Airbnb listings in the New York City, not counting hotels that list on the platform, the report said. The annual net revenue for these listings is $85 million. The city estimates there are about 10,800 illegal short-term rentals citywide.
Local politicians and housing advocates argue that the new rules will safeguard the availability of affordable housing, while some property owners say Airbnb rentals offer reliable supplementary income, the Gothamist reported.
“We’re trying to find a path forward with the city but for the moment, it’s going to be complicated,” Nathan Rotman, Senior Public Policy Manager at Airbnb, told the Gothamist. “Parts of the city are going to lose out on the economic opportunity these visitors bring, and a lot of hosts are going to lose what little income they make from the short-term renting that they do on an occasional basis.”
With interest rates rising over the last year, it has made it tougher and tougher for real estate investors and owner-occupied home buyers. People need places to live whether they are rentals or personal houses and higher rates make those properties much more expensive unless someone is paying cash. While higher rates make it tougher to buy real estate that doesn’t mean you shouldn’t be buying. It is extremely hard to time markets and usually, the best time to buy is when the time is right for you. A lot of people predicted a real estate crash which has not happened and I don’t expect one to either. There simply are not enough houses and high rates are making that problem worse not better.
Have high rates caused property values to decline?
There are some potential benefits to investing in real estate during a time of high-interest rates. For example, lower demand could lead to lower prices for certain properties, which could make them more affordable for investors. Additionally, rising interest rates usually indicate higher inflation which could mean rents rise faster than in a normal market. There is, however, no guarantee that either of these things happen.
We have seen prices drop in some markets like Austin but overall prices are higher now than ever before. High rates do not cause prices to drop significantly because while they lower the demand for real estate, they also lower the supply. People do not want to lose their low rate and builders slow down construction. I have personally seen lower prices on multifamily properties which is most likely caused by higher rates. There could be a few more deals available in that sector.
High rates will most likely make real estate more expensive in the long term because it decreases building. The fewer building there is, the less inventory there is, and eventually, that will catch up to us with higher prices. I would not bet on prices to decrease in the future, especially long term.
Should you invest when interest rates are high or wait?
I think there are many more important things to consider when investing in real estate than how high rates are. Yes, they are important but not the most important thing. After all, investors have been investing in high-rate environments for decades and making money prior to 2000.
Here are some things to consider when deciding whether to invest in real estate when interest rates are high:
Does the property make money? Just because rates are higher, doesn’t mean that properties can’t make money. There could be markets or deals where a property cash flows even with higher rates.
What kind of investment are you looking for? If you are doing a live-in flip or house hack it still might make sense to buy now since you have to pay for a place to live in whether you rent or buy.
Can you get a great deal? I get great deals on every property I buy and I would miss out on many deals if I stopped investing because rates are high. Often a great deal will make you much more money than the increased lending costs high rates cause.
Do you have the cash to wait out high rates? You might be able to get great deals that don’t cash flow now, but will in the future when rents increase or rates drop. If you are financially able to handle an asset that doesn’t make much money or even loses money for a year or two it still might be worth it to buy now.
Are you flipping or holding? If you are flipping houses the high rates may not impact you as much as landlords holding property. There is still enough demand to sell houses and flippers can continue to buy and sell.
Will rates go down allowing a refinance?
I believe that eventually, rates will decrease which could allow investors to refinance their loans and reduce their rates significantly. This could turn a money loser into a money maker or turn a single into a home run. I would not bet everything you have on rates going down but it is likely at some point. The big question is when will they go down and how much will they decrease?
No one knows the answer to either of those questions but inflation has been decreasing and the Federal Reserve should stop raising rates soon. If rates stay high it will most likely push real estate prices even higher but if they lower rates quickly it could lead to a buyer frenzy and big increases in prices. There are not too many scenarios where I see prices dropping in the long term.
Conclusion
If you can get good deals that cash flow there is no reason not to be investing in real estate right now. If you can find good deals or cannot find properties that make money then it may not make sense to invest in this market. But remember, the market may not be getting investor-friendly any time soon. If you are buying as an owner occupant, it usually makes sens to buy whenever the time is right for you and not the when the market is perfect.
“The consensus among the Executive Committee is we need to rebuild trust with staff and members with meaningful change. We are bringing in third party experts to carefully and comprehensively look at what we’re doing now for what works, what needs to be changed and what is missing. We also will support and empower staff in their similar efforts. The Executive Committee agreed we have a shared purpose and are united in support of our staff and that includes Bob,” she concluded.
Ahead of Thursday’s executive committee meeting, rumors were swirling that Goldberg and other executives could find themselves out of a job, but that is clearly not the direction NAR has decided to take, despite many members calling for the resignation of Goldberg on message boards and social media.
On Monday, prior to Parcell’s resignation, a Change.org petition was started calling for his dismissal. By Wednesday, this effort had morphed into the NAR Accountability Project. One of the first demands of the project was that Goldberg and others within NAR’s executive committee retire early. Goldberg is currently set to retire at the end of 2024, closing out his 30-year career at the trade group.
A rough week for NAR
It has been a rough week for the 1.5 million member trade organization. In the Times exposé, published last Saturday, Parcell, who had served as NAR president since November 2022, was called out for alleged sexual harassment by 16 of the more than two dozen current and former NAR employees interviewed by the Times. Parcell ultimately resigned from his position Monday evening.
Parcell has defended himself over the allegations in the NYT story. “I am deeply troubled by those looking to tarnish my character and mischaracterize my well-intended actions,” Parcell wrote in a letter to NAR’s Executive Committee and Board of Directors, first published by RISMedia. “This resignation signifies that I will put the organization’s needs first to move forward above my own personal needs to stay in this position.”
Parcell also wrote that the allegations were false, and claimed he was the victim of character assassination.
In the Times investigation, three women described a pattern of inappropriate behavior by Parcell, who runs the Kenny Parcell Team at Equity Realty in Spanish Forks, Utah.
One woman reported that Parcell placed his hands down his pants in front of her, while another woman said that she received unsolicited lewd photos and texts from him, including a picture of his crotch. Parcell denied that he had done anything inappropriate, saying the picture in question was of a promotional belt buckle and he was asking for input on the design.
A third woman, Janelle Brevard, who filed a lawsuit in the summer, disclosed a consensual relationship with Parcell that lasted months and ended with the NAR president allegedly retaliating against her.
Brevard settled a lawsuit with NAR that included a $107,000 severance payment and a nondisclosure agreement, the Times reported. According to Bruce Fox, a lawyer who began representing Brevard in August, his client decided to settle the case after “feeling intimidated by such a powerful adversary.”
Another woman, Amy Swida, a director of business meetings and events at the organization, filed an internal complaint of sexual harassment or gender discrimination by Parcell. Swida alleged that he was cruel and condescending to her after she became pregnant. She worried about being cut off from future opportunities.
“I’m scared every day coming to work,” she told the Times. NAR said Swida’s complaint was documented, and she was promoted several months later. Parcell also denied any wrongdoing.
“There is the sexual harassment, and then woven into it, this culture of fear,” Stephanie Quinn, the organization’s former director of business meetings and events told the Times. “His behavior is predatory.”
In a statement on Tuesday, Kasper said that it was important to NAR that they “take this moment to learn and focus on building a culture of camaraderie where we can do the good work we are all so passionate about.”
“This is a really hard time for our association. But I know this is an opportunity to really listen and grow together,” Kasper added. “As your president, I take the responsibility of rebuilding very seriously. Know I’m here for you, as is the entire leadership team, and we will get through this together.”
The pile of lawsuits facing Gary Keller and the real estate firm he co-founded, Keller Williams, just got larger. Former KW CEO John Davis filed his second lawsuit against the firm on Wednesday in the Western District of Texas.
In the filings, which name Keller Williams, Keller, former KW president Josh Team, Business MAPS Ltd. and Business MAPS Management LLC as defendants, Davis alleges that the defendants inflated key profitability metrics including company sales and profits to convince individuals to purchase Keller Williams Regions and Market Centers.
According to the filing, after the franchisees signed a contract, the defendants then required franchisees to adopt KWRI’s present market cap, which is the fee agents pay their market centers. Davis alleges that these fees went to increasing technology fees and the purchase of “unneeded goods and services” from KWRI-owned and affiliated companies, such as MAPS training and coaching.
“Nothing in the individual franchise agreements gave Keller or KWRI the power to set market caps themselves for independently owned and operated Market Centers,” the complaint states. “Indeed, in recommending specific and universal Market Center cap amounts, Keller was overstepping the franchisee’s role in leading an independently owned and operated Market Center.”
In addition, Davis claims that franchisees were required to purchase Keller’s books.
After signing the franchise agreement, if a franchisee attempted to move away from the KW system, the lawsuit alleges that they were forced to sell their Region or Market Center, and that Keller and KWRI interfered with any attempt to sell the franchise for market value, forcing the Region or Market Center owners to sell their franchises to Keller or other KWRI members at “extremely depreciated prices.”
In total, the lawsuit makes two civil Racketeer Influenced and Corrupt Organizations (RICO) claims, one Sherman Act restraint upon commerce claim, one intentional fraud in the inducement claim and one breach of contract claim against the defendants.
“Through this scheme, KWRI itself and the other Defendants suffer no loss, and only gains, from the harm caused to the individual owners,” the filing states. “In total, Defendants’ scheme has caused franchisees to lose hundreds of millions of dollars in total. Unless stopped, Defendants will continue to subject franchisees to the same scheme for the purposes of substantial interest and profit.”
Davis is seeking a jury trial and damages worth millions of dollars.
This latest lawsuit comes just three months after a judge in Texas granted Keller’s motion to dismiss Davis’ appeal, ordering Davis to settle his $300 million fraud claim against KW, Keller and Team through arbitration.
Originally filed in the fall of 2022, Davis’ initial lawsuit was prompted by Davis’ desire to “restore his reputation and clear his good name” after sexual misconduct allegations against him surfaced in the spring of 2022.
According to the initial complaint, Davis resigned from his position at Keller Williams in January 2019 due to a disagreement with Keller over a business strategy that he felt would hurt the income generated by Keller Williams offices.
In response to his resignation, Davis alleged that Keller and Team smeared him and withheld Inga Dow’s accusations of sexual misconduct from him as he was negotiating the sale of his KW market center regions following his resignation. This resulted in tens of millions in financial losses, according to Davis.
“This is yet another attempt by John Davis to smear Keller Williams in the press under the guise of a lawsuit. Two federal courts previously directed him to bring his claims [to] arbitration,” Darryl Frost, a Keller Williams spokesperson, wrote in an email discussing Davis’ August 2023 lawsuit. “Mr. Davis has ignored those courts. We will continue to act professionally, follow the law, and aggressively defend these baseless claims.”
In March, Colleen and Bart Basinski, former Keller Williams Market Center owners in Illinois and Indiana, and partial owners of a third Market Center in Southern California, filed their own lawsuit against KW, Keller and other top brokerage executives, alleging that they faced constant pressure from Keller, Marc King, and co-defendants Dan Holt, who is the regional director of Keller William’s Mid America Region, and Colette Ching, the regional director of Southern California, to alter their business operations, despite parameters set up in their franchise agreement, and adhere to Keller’s plans to lower Market Center caps in 2020.
Adam Wiener, Redfin’s president of real estate services, is leaving the brokerage after nearly 16 years of service, CEO Glenn Kelman announced in an email sent to employees on Tuesday. His last day at the company will be Friday, Sept. 8.
During his tenure, Wiener first served as a product manager for agent tools. He then went on to run the partner program, analytics, marketing and a variety of new businesses. Finally, he was in charge of Redfin real estate services revenue.
The next step for Wiener remains unknown; however, Kelman says that he is confident that he will continue to be successful.
“Within a year, Adam will probably be running his own show at another company also poised to conquer the world. He has long been ready to do that,” wrote Kelman in an email.
Kelman acknowledged that Wiener’s departure would be a loss for Redfin, calling him one of the “most hard-working and creative folks you’ll ever meet.”
While no other executive announcements were made, Kelman said that Wiener’s departure would yield new opportunities for current Redfin leaders. The company will not be hiring an executive to replace Wiener.
“Redfin will keep changing. We couldn’t keep doing things the way we’ve done with Adam, and we shouldn’t try. Change is necessary and good,” said Kelman.
Furthermore, Wiener will continue to serve as an advisor to Redfin until June 1, 2024, GeekWire reported. His severance package will include $450,000, or 12 months of his base salary; $84,375, which is 25% of his target annual bonus; and $18,910 for one year of health insurance premiums.
Kelman closed his memo by expressing his optimism for the year to come while acknowledging Redfin’s steady recovery from the housing downturn.
In a housing market with elevated mortgage rates and low inventory, Redfin’s second quarter revenue was $275.6 million, a decrease of 21% compared to the second quarter of 2022. It also went through a number of layoffs in the last year.
This again points to the fact that renting is here to stay and could, in the foreseeable future, take up a greater footprint. Currently about 44 million U.S. households, or about 36%, are renters.
A hedge against a downturn
And therein lies the opportunity: to assist with all types of housing needs, including rentals. Many real estate agents may shy away from working with landlords and renters. But incorporating this large market segment into their business models creates a hedge against a downturn in the sales market, particularly at a time when the average rent in the U.S. stands at $2,053, up from $1,580 four years ago.
This makes rentals even more appealing for agents as commissions are usually based on the rent price. Data shows that the estimated annual rental commission potential in the U.S. totals $30 billion when taking the total number of rentals, average rents, and commissions into consideration.
But rental commissions are only part of the story. Helping a landlord or renter can create loyalty and a lifelong client. Many renters will eventually move toward purchasing a house, considering that 95% still desire to purchase a home. Agents who work with rentals will be best-served in nurturing clients before other agents even enter the picture.
Once renters are ready to purchase a home, they are likely to turn to people they know, like, and trust. Forward-thinking real estate agents can play a pivotal part in a renter’s journey by providing guidance on topics such as affordability or even rent payment reporting to boost credit scores.
Agents who seize rental opportunities can make income where others cannot and in the process will create loyal clients they can help for years to come, regardless of mortgage rate fluctuations.
Michael Lucarelli is the CEO and co-founder of RentSpree.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the author of this story: Michael Lucarelli at [email protected]
To contact the editor responsible for this story: Tracey Velt at [email protected]
Since last weekend’s New York Times exposé of alleged sexual harassment and a “culture of fear” at the National Association of Realtors (NAR), speculation about what happens next at the trade association has been in overdrive.
HousingWire has heard from several sources that NAR, which serves more than 1.5 million real estate professionals, has planned an emergency leadership team meeting for Thursday, which may result in resignations.
This meeting would come at a great inflection point for NAR, as Kenny Parcell, who had served as NAR president since November 2022, resigned on Monday, after being called out for alleged sexual harassment by 16 of the more than two dozen current and former NAR employees interviewed by the Times.
NAR president-elect, Tracy Kasper, who was set to take office in November, began her term on Monday after Parcell’s resignation. Bob Goldberg, NAR’s long-time CEO, is set to retire at the end of 2024, closing out his 30-year career at the trade group.
Parcell has defended himself over the allegations in the NYT story. “I am deeply troubled by those looking to tarnish my character and mischaracterize my well-intended actions,” Parcell wrote in a letter to NAR’s Executive Committee and Board of Directors, first published by RISMedia. “This resignation signifies that I will put the organization’s needs first to move forward above my own personal needs to stay in this position.”
Parcell also wrote that the allegations were false, and claimed he was the victim of character assassination.
In the Times investigation, three women described a pattern of inappropriate behavior by Parcell, who runs the Kenny Parcell Team at Equity Realty in Spanish Forks, Utah.
One woman reported that Parcell placed his hands down his pants in front of her, while another woman said that she received unsolicited lewd photos and texts from him, including a picture of his crotch. Parcell denied that he had done anything inappropriate, saying the picture in question was of a promotional belt buckle and he was asking for input on the design.
A third woman, Janelle Brevard, who filed a lawsuit in the summer, disclosed a consensual relationship with Parcell that lasted months and ended with the NAR president allegedly retaliating against her.
Brevard settled a lawsuit with NAR that included a $107,000 severance payment and a nondisclosure agreement, the Times reported. According to Bruce Fox, a lawyer who began representing Brevard in August, his client decided to settle the case after “feeling intimidated by such a powerful adversary.”
Another woman, Amy Swida, a director of business meetings and events at the organization, filed an internal complaint of sexual harassment or gender discrimination by Parcell. Swida alleged that he was cruel and condescending to her after she became pregnant. She worried about being cut off from future opportunities.
“I’m scared every day coming to work,” she told the Times. NAR said Swida’s complaint was documented, and she was promoted several months later. Parcell also denied any wrongdoing.
“There is the sexual harassment, and then woven into it, this culture of fear,” Stephanie Quinn, the organization’s former director of business meetings and events told the Times. “His behavior is predatory.”
In a statement on Tuesday, Kasper said that it was important to NAR that they “take this moment to learn and focus on building a culture of camaraderie where we can do the good work we are all so passionate about.”
“This is a really hard time for our association. But I know this is an opportunity to really listen and grow together,” Kasper added. “As your president, I take the responsibility of rebuilding very seriously. Know I’m here for you, as is the entire leadership team, and we will get through this together.”
Mirroring the trend for new home sales(+4.4%), pending home sales rose 0.9% in July, according to data released Wednesday by the National Association of Realtors (NAR).
Year over year, pending home sales were down 14%, a smaller decrease than the 15.6% annual drop recorded in June. However, unlike the market for new homes, which has recovered convincingly above last year’s lows (+31.5%), pending home sales continue to lag behind year-ago levels (-14.0%). The NAR’s Pending Home Sales Index climbed to a reading of 77.6 in July. An index of 100 is equal to the level of contract activity in 2001.
“The small gain in contract signings shows the potential for further increases in light of the fact that many people have lost out on multiple home buying offers,” said NAR Chief Economist Lawrence Yun. “Jobs are being added and, thereby, enlarging the pool of prospective home buyers. However, rising mortgage rates and limited inventory have temporarily hindered the possibility of buying for many.”
Month over month, contract signings increased in the South and West but decreased in the Northeast and Midwest
Regionally, on a month-over-month basis, the South (95.3) and the West (61.3) pending home sales climbed and showed the smallest declines from one year ago, according to Realtor.com Chief Economist Danielle Hale. Meanwhile the Northeast (63.2) and the Midwest (77.5) interestingly fell, even though these two regions recently boasted more robust real estate activity and stronger pricing. Compared to a year ago, pending sales activity was down by more than 20% in the Northeast region, the biggest decline in that region over the past year, noted Lisa Sturtevant, Bright MLS chief economist.
“Greater availability of homes for sale in the South and price breaks in the West were likely contributors,” said Hale.
Overall, pending home sales fell in all four U.S. regions compared to one year ago.
Two consecutive months of increases doesn’t necessarily mean that the housing market is moving
The median existing home price crawled north of $400,000 in July while interest rates inched above 7%.
“These significant affordability challenges, as well as a continued dearth of inventory, lower the likelihood that pending sales will continue to grow,” said Kate Wood, home and mortgage expert at NerdWallet.
While it is common for pending sales to decline between June and July, this year’s situation is tougher, said Sturtevant.
“Buyers are being forced to lengthen their home search since there are so few properties available for sale,” she said.
In fact, two out of three Mid-Atlantic buyers who purchased in July had to make an offer on more than one home before they were successful, found a Bright MLS’s recent survey.
Sales activity is expected to remain slow for the rest of the year, as inventory remains low and mortgage rates remain high, noted Sturtevant.
In the competitive world of real estate recruitment, brokerages fight for the attention and loyalty of talented agents who can drive their success. As the lifeblood of the industry, agents play an important role in attracting clients, closing deals and determining the ultimate profitability of a brokerage. For real estate firms, recruiting a high number of agents as well as recruiting the best-fit agents for your firm is the key to long-term success.
Today, new brokerage models and disruptors are the norm. A firm’s ability to adjust to new competitors and evolve its way of doing business will determine if it comes out ahead in the agent attraction showdown.
At the heart of our comparative analysis, we’ll examine two popular brokerage models: the flat-fee model and the traditional model. Each one boasts its own approach to compensating and supporting agents, promising distinct advantages and challenges. By examining the data, we aim to gain a deeper understanding of each and determine which ultimately comes out ahead.
The flat-fee model: Simplifying compensation, embracing independence
In the flat-fee model, the traditional commission-based structure takes a backseat. Instead, agents are charged a fixed fee or a flat monthly rate, which allows them to retain a more substantial portion of their commissions from transactions. This straightforward approach grants agents the freedom to keep more of their hard-earned income, resulting in potentially higher take-home pay.
Pros:
Perceived enhanced earnings with a reduced fee structure.
Flexibility to structure their services and marketing strategies to fit their needs.
Lower financial risk by keeping costs low, particularly during leaner times.
Cons:
Typically, limited support and resources in the form of training, marketing, etc.
Usually, less brand recognition as compared to well-established traditional firms.
The traditional model: Commission-driven powerhouses
In the traditional model, agents are compensated through the classic commission-based structure. They earn a percentage of the commission from each completed transaction, but a portion of it is shared with the brokerage. This model has been the bedrock of the real estate industry for decades, with established firms carrying well-known brand identities.
Pros:
Extensive support and training with a significant investment in agent development, mentorship, and marketing resources.
Established brand recognition, attracting clients and contributing to an agent’s credibility.
High-value transactions due to their market position and network.
Cons:
Higher cost structure, leading to potentially lower take-home earnings.
Limited flexibility with agents sometimes bound by brokerage policies and practices, typically leaving less room for individual business decisions.
The analysis
To assess the agent attraction expertise of the flat-fee and traditional brokerage models, we looked to the data. We meticulously examined a collection of 20 of the largest real estate firms; 10 flat-fee firms collectively closing $100B in annual sales volume versus ten traditional firms which were also collectively closing $100B in annual volume [2022 RealTrends 500 brokerage data]. We excluded from our analysis any alternative models, disrupters, luxury brands and any other firms that may skew our findings.
Agent count & average sides per agent comparison
Using 2022 data from RealTrends, we first looked at the number of agents associated with each model as well as the total number of sides transacted. The data reveals that flat-fee firms collectively had a 136% higher agent headcount than their counterparts, the traditional models.
As a whole, the flat-fee firms also transacted more sides than traditional firms; approximately 19% more sides closed. We would expect that flat-fee firms would transact a higher number of deals since they have a significantly higher agent count. However, agents within the flat-fee model on average closed four deals per agent while agents within the traditional model closed eight deals per agent.
Average volume per agent & average home price per transaction comparison
Another critical data point to review is found in the average closed volume per agent. A higher closed volume can indicate an agent’s future earning potential as well as longevity in the business. In addition to examining the total volume, it’s also helpful to review the average size of the deals closed by agents within each model, which will provide insight into experience level and expertise.
The data shows that agents within flat-fee firms close less in average volume per agent, approximately 52% less. We can also see that they also closed smaller deals, on average.
Attracting new-to-the-business agents
Based on the statistical analysis, it becomes apparent that flat-fee firms often focus on a large agent count with high transaction volume. A notable trend emerges where agents drawn to flat-fee models are frequently those who are relatively new to the industry or are brand new licensees. Additionally, individuals attracted to the part-time flexibility that a real estate career offers are inclined towards flat-fee firms.
Consequently, a greater number of agents are required within flat-fee firms to achieve equivalent volume targets. Remarkably, this demand for increased agent numbers has not posed a deterrent for flat-fee firms, as evidenced by their substantial growth in recent years.
Historical shifts
While the initial data analysis reinforces existing assumptions, a more interesting and unexpected dimension emerges when historical shifts in volume and sides across both brokerage models are examined. Following the post-COVID real estate boom, both flat-fee and traditional firms experienced a surge in sides transacted as well as increasing property values, contributing to an upswing in overall sales volume.
However, the scenario shifted in 2022 with the market downturn. Traditional brokerages experienced a sharper decline in sides, attributed in part to agents leaving due to high costs, whereas flat-fee firms exhibited greater resilience. The notion that flat-fee models attract individuals who do not rely primarily on real estate as their main business is worth noting. Most intriguing is the fact that although sides decreased more significantly, the impact on overall sales volume was less severe for traditional firms compared to flat-fee firms.
A plausible theory suggests that agents within traditional firms specialize in higher value properties than flat-fee firms, leading to increased value growth. Their higher production per agent, coupled with greater experience and support, equips them to navigate market fluctuations more adeptly.
Takeaways:
Stability in challenging times:
Flat-fee models were less affected by side reductions in bad years, possibly due to part-time agents with diverse income sources.
Traditional brokerage strategy:
Traditional models maintained stable sales volume despite fewer sides, likely due to experienced agents handling higher-value deals.
Diverse model strengths:
Flat fee emphasized transactional efficiency, accommodating a larger number of transactions.
Traditional models prioritized experienced agents and larger deals, ensuring steady revenue despite lower transaction count.
Market adaptation:
Both models should consider adapting strategies to market conditions and leveraging their unique strengths.
As we conclude our analysis, it’s evident that the many seasons of change in real estate demand a strategic negotiation between innovation and tradition. Agents, the driving force of the industry, now have the luxury of choice. To win in agent attraction, flat-fee models can further bolster their appeal by offering targeted support and mentorship, enhancing their brand recognition, and cultivating a sense of community among their diverse agent base.
Conversely, traditional models can leverage their established brand identities to attract experienced agents while embracing flexibility in their offerings to cater to the changing preferences of a new generation of real estate professionals. By embracing the strengths of both models and charting a course that resonates with modern agents, brokerages can ensure they remain at the forefront of the industry’s evolution.
Diana Zaya is the founder and president of Maverick RE Consulting.
In the competitive world of real estate recruitment, brokerages fight for the attention and loyalty of talented agents who can drive their success. As the lifeblood of the industry, agents play an important role in attracting clients, closing deals and determining the ultimate profitability of a brokerage. For real estate firms, recruiting a high number of agents as well as recruiting the best-fit agents for your firm is the key to long-term success.
Today, new brokerage models and disruptors are the norm. A firm’s ability to adjust to new competitors and evolve its way of doing business will determine if it comes out ahead in the agent attraction showdown.
At the heart of our comparative analysis, we’ll examine two popular brokerage models: the flat-fee model and the traditional model. Each one boasts its own approach to compensating and supporting agents, promising distinct advantages and challenges. By examining the data, we aim to gain a deeper understanding of each and determine which ultimately comes out ahead.
The flat-fee model: Simplifying compensation, embracing independence
In the flat-fee model, the traditional commission-based structure takes a backseat. Instead, agents are charged a fixed fee or a flat monthly rate, which allows them to retain a more substantial portion of their commissions from transactions. This straightforward approach grants agents the freedom to keep more of their hard-earned income, resulting in potentially higher take-home pay.
Pros:
Perceived enhanced earnings with a reduced fee structure.
Flexibility to structure their services and marketing strategies to fit their needs.
Lower financial risk by keeping costs low, particularly during leaner times.
Cons:
Typically, limited support and resources in the form of training, marketing, etc.
Usually, less brand recognition as compared to well-established traditional firms.
The traditional model: Commission-driven powerhouses
In the traditional model, agents are compensated through the classic commission-based structure. They earn a percentage of the commission from each completed transaction, but a portion of it is shared with the brokerage. This model has been the bedrock of the real estate industry for decades, with established firms carrying well-known brand identities.
Pros:
Extensive support and training with a significant investment in agent development, mentorship, and marketing resources.
Established brand recognition, attracting clients and contributing to an agent’s credibility.
High-value transactions due to their market position and network.
Cons:
Higher cost structure, leading to potentially lower take-home earnings.
Limited flexibility with agents sometimes bound by brokerage policies and practices, typically leaving less room for individual business decisions.
The analysis
To assess the agent attraction expertise of the flat-fee and traditional brokerage models, we looked to the data. We meticulously examined a collection of 20 of the largest real estate firms; 10 flat-fee firms collectively closing $100B in annual sales volume versus ten traditional firms which were also collectively closing $100B in annual volume [2022 RealTrends 500 brokerage data]. We excluded from our analysis any alternative models, disrupters, luxury brands and any other firms that may skew our findings.
Agent count & average sides per agent comparison
Using 2022 data from RealTrends, we first looked at the number of agents associated with each model as well as the total number of sides transacted. The data reveals that flat-fee firms collectively had a 136% higher agent headcount than their counterparts, the traditional models.
As a whole, the flat-fee firms also transacted more sides than traditional firms; approximately 19% more sides closed. We would expect that flat-fee firms would transact a higher number of deals since they have a significantly higher agent count. However, agents within the flat-fee model on average closed four deals per agent while agents within the traditional model closed eight deals per agent.
Average volume per agent & average home price per transaction comparison
Another critical data point to review is found in the average closed volume per agent. A higher closed volume can indicate an agent’s future earning potential as well as longevity in the business. In addition to examining the total volume, it’s also helpful to review the average size of the deals closed by agents within each model, which will provide insight into experience level and expertise.
The data shows that agents within flat-fee firms close less in average volume per agent, approximately 52% less. We can also see that they also closed smaller deals, on average.
Attracting new-to-the-business agents
Based on the statistical analysis, it becomes apparent that flat-fee firms often focus on a large agent count with high transaction volume. A notable trend emerges where agents drawn to flat-fee models are frequently those who are relatively new to the industry or are brand new licensees. Additionally, individuals attracted to the part-time flexibility that a real estate career offers are inclined towards flat-fee firms.
Consequently, a greater number of agents are required within flat-fee firms to achieve equivalent volume targets. Remarkably, this demand for increased agent numbers has not posed a deterrent for flat-fee firms, as evidenced by their substantial growth in recent years.
Historical shifts
While the initial data analysis reinforces existing assumptions, a more interesting and unexpected dimension emerges when historical shifts in volume and sides across both brokerage models are examined. Following the post-COVID real estate boom, both flat-fee and traditional firms experienced a surge in sides transacted as well as increasing property values, contributing to an upswing in overall sales volume.
However, the scenario shifted in 2022 with the market downturn. Traditional brokerages experienced a sharper decline in sides, attributed in part to agents leaving due to high costs, whereas flat-fee firms exhibited greater resilience. The notion that flat-fee models attract individuals who do not rely primarily on real estate as their main business is worth noting. Most intriguing is the fact that although sides decreased more significantly, the impact on overall sales volume was less severe for traditional firms compared to flat-fee firms.
A plausible theory suggests that agents within traditional firms specialize in higher value properties than flat-fee firms, leading to increased value growth. Their higher production per agent, coupled with greater experience and support, equips them to navigate market fluctuations more adeptly.
Takeaways:
Stability in challenging times:
Flat-fee models were less affected by side reductions in bad years, possibly due to part-time agents with diverse income sources.
Traditional brokerage strategy:
Traditional models maintained stable sales volume despite fewer sides, likely due to experienced agents handling higher-value deals.
Diverse model strengths:
Flat fee emphasized transactional efficiency, accommodating a larger number of transactions.
Traditional models prioritized experienced agents and larger deals, ensuring steady revenue despite lower transaction count.
Market adaptation:
Both models should consider adapting strategies to market conditions and leveraging their unique strengths.
As we conclude our analysis, it’s evident that the many seasons of change in real estate demand a strategic negotiation between innovation and tradition. Agents, the driving force of the industry, now have the luxury of choice. To win in agent attraction, flat-fee models can further bolster their appeal by offering targeted support and mentorship, enhancing their brand recognition, and cultivating a sense of community among their diverse agent base.
Conversely, traditional models can leverage their established brand identities to attract experienced agents while embracing flexibility in their offerings to cater to the changing preferences of a new generation of real estate professionals. By embracing the strengths of both models and charting a course that resonates with modern agents, brokerages can ensure they remain at the forefront of the industry’s evolution.
Diana Zaya is the founder and president of Maverick RE Consulting.