Beyond the merger: Are real estate agent splits and autonomy the next battleground

Much of the conversation surrounding the recent wave of real estate industry consolidation has focused on how these mergers and acquisitions will impact things like market share and private listings, as well as companies’ finances. But how exactly will the newly formed mega brokerage entities impact their agents? Well that depends on who you ask. 

For Steve Murray, The Real Brokerage’s acquisition of REMAX or Compass’s acquisition of Anywhere Real Estate or eXp World Holdings’ deal with NextHome, shouldn’t hold much meaning for the average real estate agent thinking about their day-to-day operations.

“As an agent it won’t impact my business at all,” Murray, the co-founder of RealTrends Consulting, said. 

Looking back at the 1970s and 1980s Murray said numerous large companies, including those outside of the real estate industry like Merrill Lynch and Sears, entered the real estate industry and began purchasing brokerages, causing a wave of consolidation. 

“A lot of the smaller independents were worried they wouldn’t be able to compete against these large companies without a similar level of financial backing,” Murray said. 

However, over the course of the next decade, Murray said many of the savings and loan companies and other firms like Sears, which had entered and consolidated the real estate space, decided to exit.

“Historically, big institutional money has come into our industry and collectively got their butts kicked and not much has changed in the day to day for the agents,” Murray said.

Have things changed?

While Murray’s account may be true based on the industry consolidation of the past, Amit Kulkarni, co-founder of real estate consultancy firm Alloy Advisors, strongly believes that the firms and leaders of today are much different than those even a few years ago. 

“I think agents really need to understand that it’s not the same old brokerage leadership with the same old brokerage vision they had two or three years ago. Everything for those leaders has changed 180 degrees,” Kulkarni said. “The way that they’re operating, thinking and behaving is very different, and I think you’re starting to see that play out in real time.”  

For Kulkarni much of this difference stems from the commission lawsuits and the pressure brokerage leaders are now under as they look to mitigate future legal risks. Through the commission lawsuits, Kulkarni and his co-founder at Alloy Advisors Russ Cofano believe that brokerage leaders realize that agents take home the bulk of the revenue they generate for the company through their commission splits, while the brokers must assume nearly 100% of the legal risk. 

The end of huge commission splits for agents?

“I think brokers are starting to wake up and say, ‘Hey, we actually provide a ton of value to agents, and we aren’t seeing that value given back to us in terms of monetary compensation,” Kulkarni said. 

Due to this, Kulkarni and Cofano feel that this will be the end of the bigger commission splits for agents.

“The reason the race to the bottom with splits worked for so long from the brokerage’s perspective is because they had access to all of the inventory, but now that is changing with private listings and brokerages leveraging their listing assets to generate more transactions through this narrower pipeline and more in-house transactions,” Cofano said. 

If brokerages do begin providing agents with more internal leads, as well as other services like past client outreach, which Cofano and Kulkarni believe may be a real possibility given some of the partnerships brokerages are entering into with firms like Cotality and Occusell, allowing the brokerages to easily maintain records of transaction data, they feel that brokers will begin demanding more from their agents. 

The days of no consequences may come to an end

“I think this idea of agent autonomy in how they deal with everything from listing input to back-end client retention is going to be based upon broker-provided technology and [there] won’t be a meaningful choice about whether an agent can use it or not,” Cofano said. 

Kulkarni added that historically, brokers have only incentivized agents with no real consequence for not following policies or procedures, something he feels is coming to an end. 

“The landscape is different now and you can see all over real estate that every entity is no longer afraid to pull out the sticks in addition to the carrots to change agent behavior,” Kulkarni said. “I think the agent is being squeezed at both ends — the consumer expectations are rising on one side and then what the brokerage wants out of the agent relationship is starting to change, and I don’t think agents know that yet.”

But while more may be demanded from agents by their brokerages in the future, in the short term, Cofano says there might be a honeymoon period of sorts as the new mega brokerage companies get their stride in this evolving environment. 

“In the short term, I think we are going to see what we have seen time and time again, which is a recruiting and retention frenzy,” Cofano said. “The productive agents are going to benefit the most in the short run because the companies they are with are going to do everything they can to make sure that they stay. At the same time, they [the agents] are going to be hit with a whole bunch of recruiting from competitors. They [competitors] are all going to be looking at each other trying to figure out how to steal their top agents away.”

Agent movement may change

Although Murray doesn’t believe much will change for agents due to the recent large scale mergers and acquisitions, he agrees with Cofano that we may see quite a bit of agent movement as brokerage strategies shift and agents are faced with a variety of recruitment tactics. And while technology or various perks may play a role in an agent’s decision to change firms, he believes it ultimately comes down to leadership. 

“The most important thing is leadership,” Murray said. “As long as you can keep your organization focused, you have a chance of a solid long-term performance. The minute you start focusing only on your numbers and metrics, agents, teams and sales managers [will] get wind of the fact that it’s all about the numbers — how many people they recruit and what their sales were — and not about building culture, you’ll hit real headwinds.”

In Murray’s view, leaders must stay focused on the culture they are building even as they build out their technology and other offerings because eventually most firms will offer similar technology, leaving culture as the primary differentiating factor. 

All the feels

“Agents look at how they feel about their leadership and whether they feel these people support them and if they share the same vision and, most importantly, if they feel they can trust their leaders,” Murray said.  

For Cofano, while all of those things may be true, he believes that for most agents it will eventually come down to who offers them the best economics, which may evolve if brokers begin demanding more from their agents. 

“Leadership only matters when economics is undifferentiated,” Cofano said. “At the end of the day, the average agent is all about the economics. A lot of things are nice to have, but if you give an agent a lead that closes, they are willing to do more for the brokerage in return.”

For agents now looking at a real estate industry landscape that includes companies like Compass International Holdings that didn’t exist six months ago, the experts can agree that while their primary job of helping consumers buy and sell properties may remain unchanged, everything else may be in murky waters as the industry settles in with these new mega brokerage companies.