A report released Oct. 4 by the investment banking firm Keefe, Bruyette & Woods forecasts commissions to decline by at least 30 percent as a result of ongoing threats to the real estate industry.

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The annual pool of real estate commissions could drop as much as 60 percent if the courts hearing class action lawsuits ban cooperative compensation, according to a new report by an investment firm that focuses on the industry.

Keefe, Bruyette & Woods told investors in its report that it is “very likely” that cooperative compensation — whereby listing agents share commissions paid by homesellers with buyer agents — will be banned in the near future. It put the odds of a ban on cooperative compensation at 50 percent for the Sitzer/Burnett lawsuit and 75 percent for the lawsuit known as Moehrl.


“We believe disruption to the industry’s commission structure is all but guaranteed,” KBW analysts wrote. “While this disruption should improve consumer transparency around commissions, which economic theory suggests should reduce housing friction costs, the key question is whether this disruption actually changes anything in practice.”

Ryan Tomasello | Keefe, Bruyette & Woods Managing Director

Opening arguments are set to begin in the three-week Sitzer | Burnett trial on Tuesday after attorneys worked on selecting a jury at the Charles E. Whittaker U.S. Courthouse on Monday.

Given the possibility of such drastic shifts coming to the industry, KBW analysts said they wanted to provide investors with a playbook for how to approach publicly traded real estate companies.

“I know we have some aggressive numbers in the report,” Ryan Tomasello, a managing director with KBW who was also the primary author on the report, told Inman. “Whether those numbers have a 50 percent probability or a 5 percent probability, they’re still meaningful enough that it deserves peoples’ attention.”

Under the most likely scenarios, the firm said it expects agent count to decline by as much as 80 percent over time, with members of the National Association of Realtors falling from about 1.6 million today to between 300,000 to 600,000.

KBW reached that assumption based on possible commissions of around 2 percent to 4 percent per transaction if listing agent commissions are completely separated, or unbundled, from buyer agent compensation.

The firm also looked at the number of homes sold per Realtor and compared the data with international figures.

“What it shows us is that theoretically, the U.S. should only have like 500,000 agents,” Tomasello said.

NAR did not immediately respond to a request for comment.

The timeline for the changes is unclear and will depend on how things play out in the court. No matter who wins at trial, the losing party or parties will almost certainly appeal, so it may be years before there is a final decision in the case.

“Our sense is that institutional investors generally are uninformed on this topic,” Tomasello said. “Investors and market participants that do spend some time on this initially come away perhaps a bit overly dismissive of the impacts that could occur.”

KBW covers firms like Anywhere, RE/MAX, Opendoor, Offerpad and others in the industry.

“We don’t have investments in these companies,” Tomasello noted. “We are just advising investors on what to do with these stocks on a day-to-day basis.”

Companies that rely more heavily on commissions than on agent count for revenue, like Anywhere, Compass, Douglas Elliman and others, were more at risk than those with a franchise model, like RE/MAX, KBW said.

Companies that rely on generating buyer leads, meanwhile, could be negatively impacted. Specifically, KBW said the value of homebuyer leads generated by Zillow and Realtor.com “could decline significantly.”

It’s hard to imagine there wouldn’t be a period of disruption,” Tomasello said.

Ralph Odierna | Coldwell Banker

Zillow and Realtor.com didn’t respond to a written list of questions about the report’s findings.

“You could even argue that the people who are really good agents out there that maybe their commissions go up,” Tomasello said. “You should be rooting for all this to go through. It’s going to allow you to pitch the value of your services that you really didn’t have the ability to do before. And it’s going to wash out a lot of these excess agents that really ruin the perception of the industry for everyone.”

The report said that many of those agents who exit the industry will be “marginal,” or part-time agents who conduct few transactions each year. That would free up market share for top-performing agents, KBW said.

Ralph Odierna, a manager with Coldwell Banker in southern California, said he agreed with the report’s findings that the industry was due for a right-sizing.

“If you just look at the raw numbers of Realtors across the country there’s going to be a big drop off,” Odierna said. “What we’re going to see from my perspective is that listing agents aren’t going to go away. They’re just going to control the game.”

Email Taylor Anderson

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