$270M loss on $3.7B in revenue. If they can get opex down, there's some serious money to be made and a lot of growth left here. In my neighborhood I'm seeing more and more houses go up for sale with Compass signs.
Their single biggest expense is “commission and other transaction related expenses” which clocks in at just over 3B. I don’t know how much control they really have over commissions.
True but maybe the “industry standard” agent cut is open for “disruption.” (Personally I can’t fathom what the agents do today that adds $10k-$100k of value). They’ll find some data to support that they make agents more efficient and then reduce their cut. And when the agents complain, there aren’t going to be many people crying for them, especially the ones on Bravo.
If you're making a purchase/sale of several hundred thousand dollars, having someone with you who has done this many times before is easily worth 5% or so. Is every agent good? Well certainly not. But it's a high-stakes transaction that most people have never done before, or have done only once before, so having a veteran of many such transactions walk you through it is easily worth a few percent of the total cost.
Why haven't commission percentages gone down over time? It seems like a massive margin that should be trimmed down by competition. I would think there would be more than enough room to under cut the standard rates, cover costs and still make a healthy profit. Is there a low supply of realtors that causes them to be in high demand and helps them keep up their commissions or something like that?
The National Association of Realtors controls a huge percentage of real estate transactions, and works to make sure it doesn't drop, to the point where there are multiple open anti-trust lawsuits. For example: https://www.justice.gov/opa/pr/justice-department-files-anti...
Basically, if you don't play the Realtor game and agree to pay those commissions, it's difficult to participate in the market at large.
Can you negotiate 5%+ more salary if you know what you're doing? Yes. Yes you can. That's easy.
Half goes to buy side though normally. Although some firms try to "double pop" it and represent both sides. That should definitely be illegal everywhere.
There are a lot of terrible agents though that aren't worth it. It's a low barrier to entry with a very high upside. Not many career opportunities like it.
Buy side can be a ton of work though for the same payday as sell side. Agents and owners offer commission to the agents to make it worth their while.
If there weren't any buy side commissions, you'd get less interest, because no buyers agent would ever refer you to a house they can't make money on. Unless they had a conscious AND they hadn't already spent a bunch of time on you.
But at some point if you want a house that had no buy side commission and you locate it (Zillow or a sold by owner site), you're going to buy it without your buyer's agent.
So it could easily head the way of the hotel industry where the buy side is virtually non-existent.
I'd love to see the typical breakdown of where those 5% go in a hot market like San Francisco. At a median price of $1.5mil, that's $75k in commission. I never bought a home, but that seems like it should buy a lot of services.
In a market like SF, or on Million Dollar Listing, I think the argument towards the commission is that the agent will either save you that much through negotiation (or earn you more through inflation) and/or they will get you something that you couldn't get otherwise (e.g. an unlisted property or a celebrity buyer). That said, I imagine the agents' return-on-arbitrage is actually even higher at the top price points, and even harder to quantify because deal details can be obfuscated (e.g. through LLCs etc).
The typical 5% is split 50/50 between the buyer and seller brokers and paid by the seller. If the agent represents both sides, there's usually a discount, e.g. 4% total. Additional broker incentives, e.g. extra 0.5% to the buyer broker, may increase the commission
Isn’t the revenue number kind of misleading ? Essentially it seems like it is the total value of the transaction and their revenue should essentially be the take rate from the transaction.
The broker controls commission splits so they have all the control. The problem is that if they don’t offer fantastic commission splits to agents then the agents will go work for another brokerage. At some point, it’s advantageous to work for a different broker because they’ll offer a better commission split and enable them to standout apart from the crowd.
If they drive leads, they can capture a percentage of leads they generate for in house agents. This is why Zillow went commission split on transactions, it’s much more lucrative once you have a lead pipeline.