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Commissions are top of mind for most agents and brokers as the industry nears the Aug. 17 deadline for several landmark procedural changes, such as removing offers of compensation to buyer’s agents in Realtor-affiliated multiple listing services and the requirement that buyers’ brokers sign representation agreements with buyers before taking them on a home tour.
In his latest Inman Connect Las Vegas appearance, Redfin CEO Glenn Kelman dove headfirst into the commission conversation and focused on an increasingly shrinking sales pie, its implications for the career real estate agent, and how brokerages and portals will need to adjust their approach to lead generation.
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“Three point nine million is the number of homes the National Association of Realtors expects to be sold in the United States this year,” he said. “… It’s the lowest number we’ve had since 1995. Back then the population was 33 percent smaller than it is today, and just to put it in historical context, it hasn’t been that low at any point [since], even during the great financial crisis.”
“The real issue, though, is that even though very few homes are being sold, there are 1.5 million Realtors in America — nearly double the number that we had in 2000,” he added. “And back in 2000, there were 25 percent more sales than there are today. So somehow, we are having to divide the pot among a broader group of real estate agents, even though the pot has gotten smaller.”
Kelman said suppressed sales activity — which partially stems from weak inventory and worsening affordability — means the majority of agents aren’t making any sales. Seventy-seven percent of agents haven’t made a sale this year, slightly worse than the 70 percent average seen in previous years. Of the agents who do make a sale, more than half earn less than $50,000 a year, and nearly a fourth make $100,000.
“More than a third of [agents] have to work a second job just to be able to stay in real estate. But I’m not trying to be down about this industry. I’ve been doing it for 18 years. It’s the industry that I love,” he said. “And the thing that I have learned by coming to this conference is where that love comes from: people love being their own boss.”
“People worry about the unpredictability of income, and it’s hard for them to find customers,” he added. “This is the challenge that we have been trying to address. It shouldn’t be so hard to be a real estate agent and make a living.”
Now, more than ever, agents need support building their businesses; however, real estate brokerages and residential portals have fallen short. Kelman pointed to Redfin’s latest third-party Qualtrics survey, in which two-thirds of agents said their brokerages don’t help them find customers. On the portal side, two-thirds of agents said the quality of leads they get from Zillow, Redfin, Realtor.com and others has declined.
“Only 4 percent said that [lead quality] has actually increased. I think some of this is just because consumer behavior has changed,” he said, taking on a slightly exasperated tone. “This has been the great frustration of agents at Redfin, that people now treat us like Uber drivers, where they haven’t even given their credit card number to us.”
“They want to see a home at three o’clock on a Saturday afternoon, and they have no intention of using that agent whatsoever,” he added. “So people have begun to view real estate agents as this free utility instead of someone that you build a lifelong relationship with. That is the central challenge of this industry.”
Kelman said these stress points are bound to get worse, especially for buyer’s agents, who have the most at risk as changes come to the MLS. The Redfin CEO said buyer’s agent commission growth has been flat over the past 15 years, meaning that buy-side commissions have been relatively stable through multiple market cycles, except for a more recent 10 basis point (i.e. 0.1 percent) drop.
“The anecdote from real estate agents at Redfin over the past three or four weeks is that more customers are asking about it as some of the MLS is put in place these rules where we disclose our fees up front,” he said. “That is going to put more pressure on agents to be productive. If you’re trying to make a living off four or five sales, and you’re only getting 4 [percent] or 5 percent instead of 6 [percent], you’re going to need to increase your productivity.”
Kelman said Redfin has tried to be ahead of the curve as the brokerage has pivoted to a new compensation plan, Redfin Next.
Redfin Next enables agents to keep their full-time W-2 status and traditional benefits while getting variable commission splits based on the average home price in their market. With Next, Redfin still covers agents’ business expenses, provides a 401k alongside medical and stock equity benefits, and offers technology, support programs and leads.
Kelman said the shift to Redfin Next hasn’t been a “total slam dunk” since its introduction last year, but it still speaks to a greater evolution in the market where brokerages and portals need to focus on feeding agents’ entrepreneurial spirit rather than funneling them into a very systematic way of doing business.
“Over the years, we learned that, you know, there’s two different models. You can think of Redfin as something like a domesticated animal, maybe a lap dog; I don’t know what you all think of us. It’s not how we thought of ourselves,” he said. “I think the traditional agent has sometimes thought of himself as a lone wolf barking at the moon, but I think the industry is converging somewhere in the middle.”
“More portals are paying agents to close sales. They [are] earning referral fees instead of charging for leads up front … They’re measuring those agents based on close rate and allocating more opportunities to the agents with highest close rate,” he added. “In effect, they are taking a very entrepreneurial agent and encouraging that agent to be more systematic, and as painful as it is for me to acknowledge this, Redfin and those other portals are sort of converging on that point. ”
Kelman said brokerages and portals must be systematic in connecting agents and consumers but remove the reins once that connection has been made.
“…We are going to be very systematic about getting you in front of that customer, how you show up for that meeting, but once you’ve met them, it’s all yours,” he said. “I think [that] is really where the industry is going because if we are just going to keep generating online opportunities but not changing how we serve those customers, it’s going to continue to lead to frustrations over poor contact quality.”
“It’s going to be a bad customer experience where people are coming to a website to meet an agent,” he added. “So my hope is that you’re going to see more teams joining together like a wolf pack.”
