Although there has been speculation that real estate agents may be replaced by technology, agent commissions tell a very different story. Despite some downward pressure on commission rates, home sales are at record highs, and based on our Knock analysis of transaction volume, price appreciation, and agent adoption; we project that commission dollars will exceed $100 billion for the first time ever in 2021.1
Regardless of the technology enhancements that make it easier for consumers to shop for and sell homes on their own, 89% of consumers choose to rely on agents’ expertise to navigate these dynamics with more certainty.2 This percentage has continued to trend upwards from previous years.3
And there is good reason; agents’ invaluable local market knowledge and personal touch have proven to outweigh other methods available in this complex transaction process. Their firsthand knowledge of neighborhoods and other nearby homes is a resource buyers turn to to make competitive yet fair offers on homes.
We at Knock wanted to take a closer look at what this might mean for the industry. While we estimate 2020 commission revenue to be just shy of $100 billion (at $90.5 billion), based on 2021 forecasts of 7.1 million homes sold and average home sale price, we estimate 2021 commission revenue to be $104 billion, a number that could quite possibly be making history:
Furthermore, with total commissions growing, we can’t help but notice some of the nation’s largest public brokerages’, Realogy and Remax, stock prices are increasing too. After years of declining stock value, both companies have begun what appears to be a comeback that coincides with increased home sales starting in 2020 to present. While we can’t quite ascertain all of the forces that have gone into this increase, Ryan M. Schneider, Chief Executive Officer, President, and Director of Realogy, commented on the resiliency of commission rates in regards to their business’s performance, “People have been talking about disruption of the average broker commission rate forever. And unlike some other things that have been challenging in this industry that one is actually kind of hanging in there. And in fact, again, even in this crazy high demand market, the numbers are actually ticking up a bit. So agents add a lot of value, and we watch this closely, but this has not been the thing that has been challenging for either Realogy or the industry when you look at the past however many years.”4 This point makes it even more clear that real estate agents, and the value they bring to each transaction has and won’t, go to the wayside.
Source: Real Trends for Average Commission Rate, NAR for Existing Home Sales and Average Sale Price data, and Census Bureau for New Home sales and average price.
For the total commission revenue calculation, Knock looked at MBA Mortgage’s finance forecast of new and existing home sales for the years 2020 and 2021 and multiplied them by the industry average (4.94%) commission rates for existing home sales.5/1 For new construction sales, we assumed the commissions earned would reflect half that amount. Via this method, we were able to quantify what we believe the gross transactional value is using the average home price in the US for both years, after applying the % of home sellers who are using agents to find the total commission revenue.6/2 For retrospective percentages of home sellers using agents, we referenced the Housing Wire report’s finding on their studies done from 2001 to present. 5
Commission rate assumption: Commission rates are based on 300+ large brokerages of annual data plus inputs from national data from Realogy and Keller Williams, representing 35-40% of all transactions.
- Ostrowski, Jeff. “Real estate commissions fall to new lows as homes fly off the market.” bankrate.com,Bankrate,2021,https://www.bankrate.com/real-estate/real-estate-commissions-fall/. Accessed 2021.
- National Association of Realtors. “Highlights From the Profile of Home Buyers and Sellers.”nar.realtor.com,National Association of Realtors, 2020, https://www.nar.realtor/research-and-statistics/research-reports/highlights-from-the-profile-of-home-buyers-and-sellers. Accessed 2021.
- Housing Wire. “More Americans are using real estate agents than ever before.” housingwire.com,2018,https://www.housingwire.com/articles/47376-more-americans-are-using-real-estate-agents-than-ever-before/#:~:text=More%20Americans%20are%20using%20real%20estate%20agents%20to%20buy%20and,even%20among%20the%20younger%20generations.&text=Higher%20income%20ear. Accessed 2021.
- Motley Fool. “Realogy Holdings Corp (RLGY) Q1 2021 Earnings Call Transcript.” fool.com, Motley Fool, 2021, https://www.fool.com/earnings/call-transcripts/2021/04/29/realogy-holdings-corp-rlgy-q1-2021-earnings-call-t/. Accessed 2021.
- Mortgage Bankers Association. “Mortgage Finance Forecast Archives.” mba.org, Mortgage Bankers Association, 2021, https://www.mba.org/news-research-and-resources/research-and-economics/forecasts-and-commentary/mortgage-finance-forecast-archives. Accessed 2021.
- National Association of Realtors. “Existing Home Sales/Sales Price of Existing Homes.” cdn.nar.realtor.com,National Association of Realtors, 2021, https://cdn.nar.realtor/sites/default/files/documents/ehs-04-2021-overview-2021-05-21.pdf. Accessed 2021.