End of the Traditional 6% Commission Set-Up: What Lies Ahead for Realtors?

James, a seasoned broker, who has built a sustainable business around the conventional 6% commission structure, has an uncertain future staring his face after NAR dissolved the commission model. At this moment, his mind is buzzing with concerning questions like—

How will this change affect my income?

What adjustments do I need to make to stay competitive?

Will my clients understand and accept the new way of doing things?

Are there new opportunities I should be exploring?

How do I adapt quickly to make the most of this change?

It’s not only James who has these questions, giving him sleepless nights. Millions of realtors are not sure of what the future holds for them. This blog will discuss ways to adapt to this new development, but before that, let’s understand what has happened.

End the Conventional 6% Commission Set Up

The National Association of Realtors has agreed to settle landmark antitrust lawsuits, stirring the real estate sector to the core. The NAR paid $418 million in damages and eliminated the commission rule. In simpler words, the standard 6% commission mandate is no longer there.

Realtors have more than one reason to be concerned, as settlement also prevents agents’ compensation from being included on listings placed on MLS, which earlier allowed brokers to push more expensive properties.

The impact is inevitable. Real estate commissions are expected to fall by 25 to 50%. The news has come as a breeze for buyers and sellers, but for realtors, it’s a loss of revenue. Let’s find out how this new development is going to impact realtors.

Impact on Realtors

Business slowdown, revenue loss, and competitive market; implications of this settlement will be multifold. The dissolution of standard commissions will impact brokers and agents in the following ways:

1. With the elimination of standardized commission rates, the market will become more cluttered. Realtors may face increased pressure to differentiate themselves from competitors and demonstrate unique value propositions to attract clients.

2. The drastic reduction or elimination of commission income may require realtors to fundamentally rethink their financial strategies and revenue streams. This could involve exploring alternative pricing models, diversifying income sources, or restructuring expenses.

3. Realtors may need to invest in understanding and adapting to shifting client needs and preferences to maintain strong relationships and retain business.

In a nutshell, brokers and agents must create new revenue-generating opportunities to sustain themselves in the market. Indeed, it isn’t a dead-end for realtors.

New Opportunities to Sustain and Thrive in the Market

With the standard commission rate dissolving, the realtors have no other option but to adapt. Below are the potential avenues for brokers and agents.

Flat Fee Brokerage

This model can easily be adopted by realtors as it’s transparent and cost-effective, aligning with the NAR’s rationale behind eliminating the standard 6% commission. Under this model, there is a predetermined fixed fee for the services provided by the broker or agent, irrespective of the property’s sale price. This flat fee can be agreed upon upfront and may vary from broker to broker as per the services offered. This model will gain popularity because it’s transparent and easy on clients’ budgets.

Discounted Brokerage

If not the standard 6%, the brokerage rate can be somewhat more balanced and just. It will offer the desired cost savings to the client and a great revenue opportunity to the realtors. In a discounted brokerage model, the commission rate charged by the realtor is around 1 to 4% of the sales price.

Clients benefit from lower commission costs, allowing them to retain more of the proceeds from the sale of their property. Discounted brokerages may appeal to price-sensitive sellers or those seeking to maximize their net proceeds from a property sale.

Diversified Service Offerings

It’s the right time to explore new horizons. Apart from buying and selling transactions, brokers can venture into services like property management, real estate consulting, commercial real estate brokerage, and online auctions.

Diversification will reduce the dependency on traditional real estate transactions and create new income streams for realtors.

Consulting and Advisory Services

Buyers and sellers are always going to need the expertise and advice of realtors. It’s time to cash in on their specialized expertise. Brokers and agents can offer consulting and advisory services to such clients and help them with their real estate investment strategies, property valuation, market trends, and regulatory compliance.

Fee-for-Service Model

Commission-based compensation isn’t the only way to earn money for realtors. They can explore a fee-for-service model where they can charge the customers for the specific services rendered. It’s a la carte pricing for the clients for their chosen services, such as home staging, professional photography, marketing campaigns, and contract negotiations.

Online Auctions

Not every broker or agent explores the auction side of the business, but it’s the right time to upgrade and explore this faction. When you have a robust online auction platform in place, you are bound to attract sellers who will happily pay for advanced features like bidding management, data analytics, offer management, and marketing automation. Such features enhance the possibility of getting competitive bids, and that is the perfect reason for sellers to explore your online auction platform.

Partnerships and Referral Networks

Collaborations bring good business and are a great way to generate revenue. Realtors can collaborate with complementary service providers, such as lenders, home inspectors, attorneys, and contractors, to earn referral fees. Strong stakeholder relationships can prove a good strategy for long-term success.

Pivoting is never a bad choice when the market is ready for new ways of doing business and making money. With more people using the internet to search for their desired properties, they would like the ease of participating in online auctions. Traditional auctions require immense effort, resources, and expertise. Sellers might find it tiresome to consider auctions for their properties, but with a real estate auction platform, it’s easy to list your property and sell it through an online auction.

Let’s find out how online auctions can be an ideal revenue stream for realtors.

What does the Future hold for Online Auctions?

With the dissolution of the traditional 6% commission structure, brokers and agents are on the lookout for alternative revenue avenues. Online auctions are emerging as a promising prospect owing to the potential they hold. Online auctions offer 100% transparency to buyers and sellers, allowing brokers to set realistic prices, Besides, the reach of the listings is worldwide, attracting bidders from different backgrounds. This leads to competitive bidding and ultimately optimal sale prices for the property.

Online auctions will also give brokers the bandwidth to tailor pricing and terms to market dynamics. Having control over setting reserve prices and auction durations, they can bring the highest value to their clients, ultimately gaining a substantial commission for themselves.

Talking about being a good new source of revenue, brokers can negotiate competitive compensation for their services based on successful sales. A reduced administrative burden on the sellers is also a good negotiation point for the brokers while setting their profit.

Final Remark

The end of the traditional 6% commission has stirred things up for brokers and agents, but a shift in perspective can help them steer clear of the turbulence. With many new models ready to boost their earnings, brokers must find out which model is suitable for their business. Amid all the discussion around new revenue streams, one fact stands out: technological advancement is essential to thrive in the market for a long time. The future belongs to the online ways of doing real estate business. Online auctions, IDX listings, and data analytics; the prospects are bright for those who are ready to adapt. Are you ready?