The Real Estate Correction: How Shrinking Commissions Could Lead to a Stronger Industry

Navigating the Investor Maze

Grow your business faster than you think!

Click HERE to be notified of the webinar details.

The Changing Landscape of Real Estate: Challenges and Opportunities Ahead

The real estate industry is on the brink of a major transformation, with significant implications for both real estate agents and mortgage professionals. A recent study by AccountTech has revealed some startling projections that could reshape the industry as we know it.

The Profitability Crisis

According to AccountTech’s analysis of 100 randomly selected brokerages:

• 80% of real estate firms are projected to become unprofitable under the new compensation structure.
• Even a minor decrease in commission rates could render many companies unprofitable.
• If commissions drop to 2%, nearly 80% of firms would be unprofitable.
• At a 2.5% commission rate, 60% would struggle to maintain profitability.

The study also examined the impact of physical office count and agent numbers:

• Only 14% of companies with three storefronts would remain profitable if commission rates drop to 2% per side.
• For firms with 100 to 5,000 agents, 88% will be unprofitable if the average agent commission drops to 2%.

Industry Transformation

These projections suggest several potential outcomes:

1. The end of brick-and-mortar offices: With most agents already working remotely, physical offices may become obsolete.
2. Consolidation of top performers: The few remaining offices will likely house exceptional, successful agents who value a professional environment.
3. Increased competition among mortgage companies: These high-performing offices will attract representatives from various mortgage companies.

A Silver Lining?

While these changes may seem daunting, they could lead to a more professional and efficient industry:

• The National Association of Realtors (NAR) has long boasted about high membership numbers, even when the market couldn’t sustain them all.
• This “correction” could create a more uniform level of professionalism in real estate.
• Fewer agents mean less competition, potentially leading to better compensation for those who remain.

Impact on Mortgage Professionals

The ripple effects will undoubtedly reach the mortgage industry:

• Fewer real estate agents will result in increased competition for a smaller pool of successful agents.
• The number of loan officers is likely to decrease as well.
• Those who survive the industry overhaul may find themselves in a more professional environment, potentially leading to better compensation and improved service for consumers.

Strategies for Success

To navigate these changes, mortgage professionals should:

1. Focus on building and solidifying relationships with successful agents.
2. Understand the growing importance of investors in the market (currently buying 1 in 5 homes).
3. Expand their expertise to include a wide range of loan products, including:
   • Non-QM investor loans
   • Bridge loans
   • Blanket loans
   • Multi-use property loans
   • Specialized loans (e.g., for churches, restaurants, storefronts)

By diversifying their skill set and becoming full-spectrum professional loan officers, mortgage professionals can position themselves for success in this evolving landscape.

Conclusion

While the road ahead may be challenging, those who adapt and expand their expertise will find opportunities in this new era of real estate and mortgage lending. Stay tuned for upcoming webinars that will delve deeper into these topics and provide strategies for thriving in the changing market.