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Less and Less for the Broker!

In 2016, the average broker kept only 15 cents of every dollar of commission earned.

By Scott Wright, Director of Mergers and Acquisitions

As recent as the mid-1990s, the average brokerage firm was retaining about one-third of every dollar of commission earned by their agents. Those days indeed bring back fond memories for brokers who were around back then, but many of these same brokers are today being driven out of the business as the retained dollar continues to decline.

Brokers are Losing Bargaining Power

Ask the owner of any brokerage firm about this decline, and the answers will be resoundingly similar. Brokers are losing bar-
gaining power as they try to recruit and retain top agents. We can discuss the forces behind this trend until we’re blue in face, but the fact is it’s the new reality in the real estate industry.

At REAL Trends, we’ve been watching this trend unfold for nearly 30 years, and have been able to quantify it via various research studies and benchmarking tools. The recent update of our benchmark data shines a light on what brokers have been dealing with.

The percentage of gross commission income retained had been declining since well before the mid-1990s when it was about 33 percent. It fell to 28 percent in 2003 per our Brokerage Performance Report. As you can see in the chart, “GCI and Percent Retained,” it averaged 23 percent in 2012, which happened to be the trough for housing prices following the bloodbath several years prior. It has continued to decline. With 2016 numbers now in the books, we see a ghastly 15 percent retained. The average broker is now only keeping 15 cents of every dollar of commission earned!

The hundreds of brokers populating this benchmark report come in all shapes and sizes. Some are small independents, some are major national brands, some are on graduated commission plans, and some are on 100 percent plans. By the nature of averages, some brokers are still retaining well above 15 percent, and some are only in the single digits. When it all comes together, the trend for percent retained continues to slide.

Forced to Adapt

Brokers have been forced to adapt to this downtrend in a variety of ways, one being to increase office productivity.  As you can see in the chart, per-office Gross Commission Income has significantly increased since 2012 (since the brokers that feed our benchmark data vary in size, we standardize the numbers on a per-office basis). In 2016, the average office brought in $6.7 million in GCI, nearly double what it did in 2012.

Despite declining retention rates, this big increase in office productivity has led to an increase in Company Dollar, to the tune of 19 percent over this same period.  The savvy brokers have so far been able to adapt to improve their above-the-line numbers on balance. Though brokers are getting less and less of every dollar of commission earned, they’re finding ways to thrive in this ever competitive real estate market.

This article originally appeared in the April 2017 issue of the REAL Trends Newsletter and is reprinted with permission of REAL Trends Inc. Copyright 2017



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