DelPrete: Are agents at low-fee brokerages any less productive?


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The dual hypotheses that low-fee brokerages aren’t sustainable, and that their agents are less productive, are false, Mike DelPrete writes.

This article was shared here with the permission of Mike DelPrete for Inman Intel, a data and research arm of Inman offering deep insights and market intelligence on the business of residential real estate and proptech. Subscribe today.

unnamed 2023 06 20T100013.782A common response to my previous analysis of agent compensation at the top U.S. brokerages is that the brokerages paying the most out to agents couldn’t be profitable or sustainable – but, perhaps counterintuitively, the evidence suggests otherwise.

Why it matters: In a shifting market, the low-fee brokerage models are structurally designed to thrive, and are operating much more profitably than legacy brokerages.

  • To recap, the low-fee models are paying out a significantly higher percentage of their revenue to agents than legacy brokerages.

unnamed 2023 06 20T100016.847Those same low-fee brokerages are also profitable or closest to profitability: eXp Realty, United, Real and Fathom (RealtyONE declined to share this information with me).

  • The only companies that were profitable in Q1 2023 were eXp Realty and United Real Estate, and the largest legacy brokerages were really unprofitable.
  • Note: This analysis uses Adjusted EBITDA (think of it as adjusted net earnings) as the metric of profitability — it allows a company to portray its earnings in the best possible light by backing out expenses like stock-based compensation, one-off legal or restructuring charges, and other non-cash expenses.

unnamed 2023 06 20T100019.869To account for variations in brokerage scale, we can look at Adjusted EBITDA per transaction, which yields similarly revealing results.

  • It’s worth directly comparing the two fastest-growing models of the past five years, Compass and eXp: in Q1 2023, Compass lost $1,900 per transaction, while eXp generated a profit of $130 per transaction — quite the difference.
  • The outlier is Douglas Elliman, which has a much smaller transaction volume (4,600 in Q1 ’23, compared to 36,000 at Compass), so its loss per transaction is much higher than its peers.

unnamed 2023 06 20T100024.836The next most common response to this analysis asserts that the low-fee models don’t provide as much support to their agents.

  • Therefore, while agents are able to “make more money,” they’re on their own and, without brokerage support, are less productive.
  • Once again, the evidence suggests otherwise.

Across the nine brokerages in this analysis, the average production was one transaction per agent in Q1 2023.

  • The average for the legacy brokerages (Compass, Anywhere, Keller Williams and Douglas Elliman) was 1.03 transactions per agent, while the average for the low-fee brokerages (eXp, Real, RealtyONE, United and Fathom) was 0.98 transactions per agent — effectively the same.
  • In aggregate, agents at low-fee brokerages, with “less support,” were just as productive as agents at the legacy brokerages with “lots of support.”

unnamed 2023 06 20T100029.107Variability in the number of transactions per agent over time provides further evidence: between Q4 2022 and Q1 2023, the average number of transactions per agent dropped 10 percent across the same nine brokerages.

  • Four low-fee brokerages (eXp, Real, Fathom, and RealtyONE) were at or below that average — meaning that their agents saw less of a decline in transaction volume than agents at legacy brokerages.
  • Support or not, agents at low-fee brokerages were more resilient and saw less variability in production during a changing market.

unnamed 2023 06 20T100034.210Yes, but: These are averages, and as with all averages, there will be overs, unders and outliers.

  • Not all low-fee brokerages and legacy brokerages perform similarly.
  • Furthermore, inside each organization, there is significant variability in individual agent performance and compensation.

The bottom line: The dual hypotheses that low-fee brokerages aren’t sustainable, and that their agents are less productive due to less support, are false.

  • Low-fee brokerages are, in fact, more profitable than the legacy brokerages, even after paying out a significantly higher proportion of their revenue to agents.
  • This is classic Innovator’s Dilemma: While the legacy brokerages are racing to cut costs, the low-fee models — built from the ground up with a lower-cost operating model — are taking market share and competing where they can win.

Mike DelPrete is a strategic adviser and global expert in real estate tech, including Zavvie, an iBuyer offer aggregator. Connect with him on LinkedIn.

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Alexandra Williams
Alexandra Williams
Alexandra Williams is a writer and editor. Angeles. She writes about politics, art, and culture for LinkDaddy News.

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