I am not an attorney, but I have served as an industry expert witness in three other Sherman Act federal-level cases, at least one state level restraint of trade case and over 60 other cases. So, while I make no claim as to the specific deep legal issues, I have some familiarity of antitrust actions and more in the conduct of legal actions in a courtroom.

So, with my modest experience in such matters let me comment on what I read in these motions.

No evidence of collusion

First, according to the filings, the plaintiffs in the case presented no evidence at trial as to any collusion or conspiracy among the defendants. There were no meeting notes, no emails, no joint or concerted actions by or between the defendants in the implementation of the Cooperative Compensation Rule. The defendants say there was no evidence presented at the trial that excludes the possibility of independent action by any of the defendants.

No evidence that plaintiffs suffered harm

According to the filings, there was no evidence that any of the plaintiffs suffered harm from the actions of the defendants. They entered into listing agreements with seller agents and agreed to the terms of those agreements without being under any duress to do so.

RealTrends research establishes that the use of real estate agents, using access to the Cooperative Compensation Rule, has become more attractive over time, not less, as evidenced by the increased use of agents in selling and buying property.

Second, previous courts had found that the rule of reason should apply to MLS-focused cases, and not under the per-se standard. The per-se standard establishes that the defendants did operate a system that itself was collusive or whose outcome was to restrain trade. This court ignored all those precedents.

Issues with the damage award

The damage award was calculated by imputing that the entire “3%” was awarded to buyer agents by listing agents for the MLS regions in Missouri for the seven years of the class period. That is how they got to $1.8 billion. Even though evidence at trial showed that the actual cooperative commission paid was lower than this amount, the jury awarded all of it.

According to the filings, the jury and the court assigned no value to the services provided by buyer agents to any of the sellers in any of the tens of thousands of transactions contemplated in the award for damages. The argument was made that the court did not require the plaintiffs’ experts to run any actual calculations of damages, just chose a number based on a fictional commission rate that has not existed in the market for years.

Missouri law permits sellers and their agents to compensate buyer agents

One last item—Missouri state law it is permitted for sellers and their agents to compensate buyer agents. This evidence was not allowed to be presented to the jury.

I want to express what readers should know. At least at the Federal level, the U.S. Department of Justice and the Federal Trade Commission have had the Realtor organization and the industry in their sights for an exceedingly long time, and, in my opinion, not in a favorable way. 

For those who want to fault defense counsel for not running an adequate case, you might want to reconsider that line of thinking.

Steve Murray is founder of RTC Consulting, a company that specializes in real estate brokerage and team valuations, mergers and acquisitions.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
Steve Murray at smurray@realtrends.com

To contact the editor responsible for this story:
Tracey Velt at tracey@hwmedia.com

Last year, nationally there were slightly over 10 million transactions of existing homes sales. 

Theoretically, multiplying the damage claim by 40 or so would result in a total of $72 billion in damages if extended across the country against all transaction sides.

According to data from RTC Consulting and RealTrends, the total gross commission paid out to residential brokerage firms and their agents over the past five years was approximately $420.9 billion. 

What we also know is that the average gross margin, the money that is retained by brokerage firms, is about 14% of gross commissions among all brokerage firms in the U.S., according to RTC Consulting data. So, the brokerage firms’ share of the gross commissions was likely in the range of $58 billion over that period. 

Breaking down the numbers

So were a Federal judge — consolidating all the claims against all brokerage firms in the U.S. to set this claim — then it would equal about 124% of all the gross margin that all brokerage firms did in the last five years. 

Since the average pre-tax profit margin, according to our data, was approximately 4% over that time, then the approximate profit would have been about $2.3 billion over that period —for the full five-year period. This means that the damage award, if extended nationally, would be 31.3 times all the pre-tax profit made by the brokerage industry during that time frame.

Of course, the significant missing data is that most of the gross commission revenue ends up with the real estate agents and teams. According to our data, 86% of it, on average, across all business models, brands, regions etc. goes to the agents and teams. To the best of my knowledge none of the agents and teams were named in the Missouri case. We do know that in the most recent case filed in Texas some teams and individual agents have been named but only a very short list.

I am not sure that any brokerage firm would have the ability to recapture any of the damages from their agents or teams. Perhaps someone may know how this could be done, but I am not sure how a brokerage could reach back to do so.

This is among the large challenges facing the industry. Those who benefitted the most from the system as it has existed escape any liability in the damage awards.

Steve Murray is the founder and partner of RTC Consulting and a senior advisor to HW Media.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
Steve Murray at smurray@realtrends.com

To contact the editor responsible for this story:
Tracey Velt at tracey@hwmedia.com

Here are some of the highlights:

In Entrepreneur, the writer states, “…the court ruling (Sitzer) could lead to a decrease in the average home price in the U.S. by 1% to 2% just by cutting the commission paid to buyer’s agents.”

The writer in the Economist says, “…either the fat fee [real estate commission] inflates the house price, or the buyer ends up paying a similar fee when he or she sells.”

This is from the Editorial Board of The Wall Street Journal, “Ninety percent of transactions offer buyer agent commissions of exactly 3%.” And this one, “If not for the Realtors rule, many buyers wouldn’t use brokers or would negotiate lower commissions.  Home prices would likely fall.”

They are wildly wrong

Their statements are not only wrong, but they are wildly wrong. 

Any person involved in selling a home knows that you cannot increase the price of your home randomly to cover the cost of commissions and other closing costs. The market sets the price of the home, and it cares little for closing costs — or what the homeowner invested in it — when determining the price for which it will sell.

Sales prices don’t go up or down based on closing costs. It does not happen (speaking as someone who has bought and sold nearly a dozen homes, aways used a Realtor, and not once could I increase the price to cover the real estate commission or other closing costs). Aggregate data from the housing market would confirm this.

The Economist also writes that according to a 2019 Brookings Institution report, Realtor fees consumed a quarter of the capital gains earned in an average home sale. I did some simple math using data from the St. Louis Federal Reserve that says American home equity amounted to nearly $30 trillion at the end of 2022. I divided that by total commissions paid out to residential Realtors in 2022 of approximately $84.8 billion, adjusted it for homeownership levels, and came up with a figure of approximately 4.8% of homeowner’s equity paid out in commissions. 

Is the Brookings Institution saying that the average homeowner only saw their equity increase by 20% in years past? One source indicates that total home equity in American homes has increased by 64% in the past five years. It’s true that Brookings did their study back in 2019 and there has been a surge in equity values in the past four years, but still.

From the Wall Street Journal Editorial Board, “the commission on home sales has stayed basically flat for decades at 6%, split evenly between the buyer and seller agents.”  What a truly wrong statement for which is there ample evidence to prove that it is incorrect. We have been tracking this number on a national basis for nearly 30 years. The average has been dropping for nearly all of those years and now stands at slightly less than 5%. Our data is good enough for the DOJ and the FTC to use for their own report on competition in the industry in their 2005-2006 report.

Lastly, I quote from Entrepreneur Magazine: “Firms like Redfin and Zillow have changed the homebuying process by providing buyers with easy access to a wealth of information on properties, neighborhoods, school systems, and more.”  The writer then goes on to say “agents must adapt and find new ways to provide value to their clients. This may involve building strong relationships, offering personalized service, and providing guidance on complex aspects of the homebuying process that may not be readily accessible online.  Additionally, agents must continue to develop their skills in negotiation, market analysis, and navigating the legal intricacies of real estate transactions.”

As if that is not exactly what has happened over the past 20 years since property data became available online? If I must read one more article that says technology has lowered the need for Realtor services, then read that agents must adapt to this new environment which includes being better at every aspect of the transaction, as if they haven’t, I think I will be ill. 

Despite all the technology and information that housing consumers have at their disposal, over 90% chose to use an agent last year. When they had a clear alternative to using an agent and saving money on transaction costs.

One big factor no one is talking about – friction.

Imagine a future as the plaintiff’s counsel, the DOJ and obviously many business writers don’t want to talk about. The current marketplace has been designed to reduce friction in the transaction. The future they seem to think is a beautiful thing increases friction. 

Friction comes when the seller, seller’s agent, buyer, and buyers’ agents now have to negotiate the compensation among the parties. Who is going to pay how much to whom? 

Friction comes when buyers, particularly first-time homebuyers (about 25% of all recent homebuyers) lack effective representation when they buy a home to save on paying a buyer’s agent. The potential for litigation increases exponentially in such a future. 

Friction comes via a lack of effective representation on either the selling side or the buy side, when instead a transaction coordinator or facilitator is involved, which will ultimately reduce fiduciary to either party.

So, while many seem bent on destroying the system, not one can describe what the new system will look like and how it will benefit the parties to the transaction. Industry professionals do know and we all know it will increase chaos and conflict between parties.

Steve Murray is the founder and partner of RTC Consulting and a senior advisor to HW Media.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
Steve Murray at smurray@realtrends.com

To contact the editor responsible for this story:
Tracey Velt at tracey@hwmedia.com

No buyer must use a real estate agent — ever. They may buy directly from a seller, whether that seller is represented by an agent or not. A meaningful percentage of buyers did not hire a real estate agent when they bought their last home. Consumers face no regulatory barriers to purchasing without an agent.

Commissions have always been negotiable, and consumers know this. 

RealTrends + Harris Insights‘ studies from 2002, 2005, 2006, 2011, 2014, and 2019 all show that consumers know that commissions are negotiable. Certainly, there are some that don’t.  Whether this is because they have not researched this capability or that they choose not to negotiate is unknown. 

Another known fact is that at least one firm, Redfin, which gets over 50 million unique visitors on its website each month and offers discounted listing and lower-cost buy-side commissions, is available in most of the metropolitan markets in the United States. Despite that, it has less than 1% market share of all transactions. 

Preceding Redfin over the last 50 years have been consumer discount firms Help-U-Sell, Assist2Sell, and ZipRealty, among others. At one time, the former two had over 1,500 retail locations in the United States combined. ZipRealty closed nearly 30,000 transactions at its peak. Consumers have had lots of choices in brokerage services, including those with lower costs, but they have chosen not to use them in any meaningful way. 

Why aren’t consumers using discount firms?

While we don’t know for sure why discount brokerage firms aren’t gaining traction, perhaps it is because consumers enjoy the benefits of using their own agent, one that they know and trust, and where the cost is a secondary consideration.

Consumers who didn’t know they could get discounts were either living in a cave or were lazy or afraid to ask for a lower commission. The ability to lower one’s commission costs, including to zero, was abundantly available information to a huge portion of consumers. HousingWire’s own data shows that commission rates have been falling consistently over the past 30 years, primarily due to consumers negotiating for a lower rate or a rebate.

What about the MLSs?

Some say the MLS enables U.S. real estate agents to have higher commission rates than in other countries. There is some truth to this position. What it leaves out is the value that MLSs bring to the participants in the market, both real estate professionals and consumers. Those who point to this conclusion fail to mention the role the MLS plays in the U.S. (and Canadian market) in assuring a high level of accuracy in data about the homes that are for sale, the sales prices of homes that are sold, and the comparable data for price comparisons. Among other benefits are regulations and processes to make the market efficient and fair that are promulgated and enforced by the MLS.

Take the MLS out of the picture and you have the portals, none of which are geared to police the accuracy of the data provided by sellers. None of which are geared to police agent conduct in the market. Without the MLS, real estate professionals and consumers would be at the mercy of three to four large, national portals whose business models aren’t geared to do any of the messy oversight of the market — nor would they want the liability to do so. Just look at CoStar’s dominance over the commercial brokerage market. Now, picture them together with Zillow and Realtor.com. It’s not a pretty sight. 

Lower commissions don’t account for the real value of the MLSs

Those who say that other countries who lack MLSs have lower commissions fail to account for the real value provided by MLS. Those who point to these other countries also don’t point out that the lack of cooperation between agents and brokerages means that, apart from the real estate portals in these countries, consumers are left to their own devices to find out what the available choices may be in homes for sale. They may be forced to deal with multiple agents/brokerage firms to find the right home or to determine the right price for the sale of their own home. The argument about other countries’ commission rates aren’t as high as in the U.S. fails to take any of this into account.

My experiences as an expert witness

Having been an industry expert witness in several restraint of trade or price-fixing cases, I can say that between the U.S. Department of Justice, the U.S. Federal Trade Commission, and a multitude of private litigants, there is a total lack of knowledge of how the market works, the freedom of consumers to choose to use an agent or not or what to pay them and the value of the Realtor marketplace.

The plaintiffs I have dealt with, their economics experts, and the Federal agencies, just see the commission rate and can’t believe that consumers would choose to use such a system absent some coercion from the industry. 

Trust me when I say they have all been frustrated, thus far, in their ability to enforce a new regime on the industry that will somehow lower commission costs and not negatively impact the services provided or the functioning of the market. The repeated challenges from all three forms of litigants show that what they seek, they will not get. Even the settlements now being proposed by the current litigants won’t accomplish this.

Even with all the technology and the huge increase in information about the U.S. housing market that has become available in the last 25 years, the use of agents by consumers has risen, not decreased. 

Even with technology that allows consumers to transact far easier than ever before with online forms and digital signatures, the use of agents has risen to its highest level in history.  Do these litigants think all consumers are dumb?

What do the litigants really want?

In my opinion, the current litigants don’t care about how the outcome of their case may impact the market. They don’t seem to care if their actions cause a huge increase in unrepresented first-time homebuyers. I will leave it to the reader as to what they think these litigants care to get out of their actions. Just look at the proposed settlements to get a clearer picture.

The report by Keefe, Bruyette & Woods, “Commission Impossible: Will Litigation Reshape the Housing Market?” will turn out to be wildly inaccurate when the dust settles. And the Editorial Board of The Wall Street Journal, who I personally hold in high esteem, failed miserably in their review and comment on this litigation.

It has been my own observation that whenever the Federal government seeks to control an industry through litigation or regulation, it only exacerbates consolidation, complexity, and costs. Whether this current wave of litigants, supported by the Federal agencies in spirit if not in fact, will prevail we will wait to see.

Steve Murray is the founder and partner of RTC Consulting and a senior advisor to HW Media.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
Steve Murray at smurray@realtrends.com

To contact the editor responsible for this story:
Tracey Velt at tracey@hwmedia.com

In both cases, our clients and Compass had to design new ways to structure the transaction to get a favorable outcome for all parties. Without revealing any confidential details, for example, Compass is using mostly its own equity rather than cash to deliver value to the sellers. While earn-out terms continue to be mostly based on some metric of future performance, in both cases, there were brand-new features that granted important incentives for our clients to stay engaged for several years, if not longer.

Certainly, the expectations of brokerage firms did not change in terms of the multiple of EBITDA upon which valuations are based. The reality is that in all the deals we have worked on since July 2022, EBITDA in absolute terms is not what it was in calendar years 2020 and 2021.  In each case, the sellers have a real possibility of increasing their ultimate purchase price returns dependent on the future performance of Compass’s equity value and their own performance under the earn outs.

A major point to make here is that so long as both parties are clear about their goals in trying to create a successful merger of interests, then the possibility remains for a great outcome.  While it is true that overall valuations are down from where they were in 2020-2021, this is mostly due to the decline of profitability in brokerage and related services. Concerning future earn-out returns, it is an opportune time to structure deals as the next two to four years are likely to be better than the last 12 months. That makes the opportunity to receive most or all of the earn out higher than when selling into a market getting ready to decline further.

While these two transactions were among the largest we worked on this year, most of our work is between local firms combining their operations. This remains the most active part of the market. For medium- to large-sized brokerage firms, this is a great time to reach out to determine which other firms in their markets would be open to a combination of some form.

Steve Murray is a partner with RTC Consulting and a senior advisor to HousingWire.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
Steve Murray at smurray@realtrends.com

To contact the editor responsible for this story:
Tracey Velt at tracey@hwmedia.com

Threats to the Realtor marketplace

Now, the outcome of the class action litigation threatens this marketplace to its core, with long-lasting impacts on all the participants — Realtors, the Realtor Associations, and buyers and sellers of homes. 

Here are my thoughts about how this Realtor marketplace may change and how market participants will react.  A cautionary note — no one can say with certainty how this will play out over the next few years. 

The two main changes

There are two main changes which I think are going to happen. First, cooperation will remain among participants, but the compensation will change. In place of the required compensation for cooperating buyer brokers, we could see several different options become substitutes. Second, we’ll see changes to franchise agreements.

Cooperation and compensation

On the cooperation and compensation question, I think there are a few ways agents, brokers, and buyers may change their practices. I am also confident there are more than are listed here.

• Buyer agents could ask or require their buyers to pay them directly.
• Buyer agents could include a request that sellers pay their fee as a part of the offers that buyers make to a seller (much like they have for repairs, etc.)
• Buyers may begin to go directly to listing agents.
• Sellers may choose to offer a referral fee to buyers’ agents.

Franchise agreements may change

Based on what we have learned about the settlements between defendants and plaintiffs in these class-action cases, brokerage firms affiliated with the national companies that have settled thus far (yes, multiple companies have settled so far) end these requirements in their franchise agreements:

1. That franchises must belong to the Realtors at any level
2. That franchises will not be required to abide by the Realtor Code of Ethics and
3. Such franchises will no longer be required to abide by the Realtor MLS guidelines. 

There is some confusion over whether the settlement actually requires these defendants to abandon these three areas or merely ends the requirements for brokerage firm participation for those currently part of existing franchise agreements.  Certainly, more information about these details will be forthcoming shortly.

Regardless of how this area shakes out, the outcome will likely be lower commission revenues for the industry in the aggregate.

Any or all of these options, or others, may become available. At this time, it is almost impossible to make predictions about which of them may become the most frequently used method. 

A far less efficient market

What is almost certainly an outcome is a far less efficient market than what exists today.  Sellers, buyers, listing agents, and buyer agents will be in an entirely new world where transactions may have a widely different schedule for who is performing what services, how much each person will be paid, and from whom payment will be received. Each agent will have to spend time determining how this works on each transaction.

We will go from a predictable, fair, efficient market to a chaotic one, at least for a period, until this gets worked out.

Potential impacts of amended franchise agreements

If national firms no longer require their franchises to be members of the Realtors, or to follow the Realtor Code of Ethics or the MLS policy guidelines, there is far more uncertainty about possible impacts Incumbent brokerage firms belonging to national franchise firms are already under pressure from lower cost, flat-fee brokerage firms. Should more national firms choose to settle with the plaintiffs on similar terms, it is possible that some franchises will choose to stop compelling their agents to be members of the Realtor Association. This would be a means to be cost-competitive with low-cost brokerage models, than it as a vote against the Realtor organization.

Should this happen, one can imagine a significant decline in Realtor membership may occur. How far this trend might go is anyone’s guess, but it won’t be a good development for the Realtor organization at any level.

Few understand our current fair and efficient market

Most outside of our industry have little understanding of all the work that goes on outside of public view in the creation of information that is as accurate as possible and available to all.  Few understand that it is not just information that creates a fair and efficient market, but regulation and policy that guides professionals in their conduct within that market. 

Reducing the influence of the Realtor organization in any of these areas will result in less transparency, discipline and predictability.

While the Realtor marketplace has some flaws, these are outweighed by the benefits of a fair and efficient market, with understandable and enforceable procedures and practices. 

National portals as a replacement?

There are those who think the national portals can replace MLS. Who will police the accuracy of the seller’s information? Who will police and enforce Fair Housing standards? Who will ensure that compensation agreements made between different parties are enforceable?

What happens in the market should buyers frequently go direct to the listing agent? Will the listing agent automatically step up to provide the services previously provided by the buyer’s agents?  It is a little bit frightening to think that millions of first-time buyers will begin their homeownership experience with no formal representation.

There are many unknowns. It may be some time before we understand what the new marketplace looks like.

Steve Murray is a senior advisor of HW Media and a partner with RTC Consulting in Colorado.

This column does not necessarily reflect the opinion of RealTrends’ and HousingWire’s editorial departments and its owners.

To contact the author of this story:
Steve Murray at smurray@realtrends.com

To contact the editor responsible for this story:
Tracey Velt at tracey@hwmedia.com

It is important to note that every one of the major national networks, those listed above, along with RE/MAX, Anywhere, United Real Estate and HomeSmart, are still active with local combinations among both their company-owned operations and their affiliated firms.

RTC Consulting has continued to see the same level of valuation work in the past 12 months as we saw in each of the proceeding years. While not all these valuations are for the purpose of a merger or acquisition, many are. In fact, the level of in-market combinations has not declined much at all. 

The big difference

One big difference, of course, is that valuations are down from where they were in 2020 to midyear 2022. Rather than a multi-year average of EBITDA or Gross Margin as the basis for the value of a brokerage firm (or their related counterparts in mortgage, title, escrow, and property management), valuations now are based Trailing Twelve Months (TTM or LTM) results. This does mean that the value of nearly all of our clients is down from where they were 15 months or more ago.

Terms have slightly changed

Furthermore, the terms of most transactions are characterized with less cash at close and more on the contingent part of the transaction (often referred to as the Earn Out). Earn Outs continue to run for a minimum of two years to a maximum of five years. Some of the most recent transactions we’ve handled are structured to include some “back-side” or “upside” opportunity to make up for the recent decline in base valuations.

Among the most active parts of the market are combinations between two local firms that have contiguous operations and similar cultures. This last point, having similar cultures, has long been overlooked as a key point in attempting to bring together two local firms. Unlike in the past, the variations in business models have made local combinations more challenging. Combining two brokerage firms with widely disparate commission or fee plans is very difficult no matter the economics.

Another very active part of the market is that of residential property management firms.  In this segment, multiples are higher than for a similarly sized residential brokerage as the financial results of this segment of our industry have not as materially impacted as has the brokerage segment, along with title and mortgage, which are all transaction driven.

While there have been some comments about the decline in mergers and acquisitions, we continue to have a normal number of clients interested in either being buyers or sellers.

Steve Murray is a senior advisor for HW Media and a partner with RTC Consulting, the leader in valuations and acquisitions over the past 35 years.

When you think about a real estate team, you automatically think they must be more productive than individual agents, right? Not so fast.

Clearly, over the last decade, teams have grown far faster than individual agents in terms of closed transactions. This is not unexpected, as teams have the ability to scale their business far easier and faster than an individual agent.

However, in terms of the average price of properties closed, our research shows that individual agents have the upper hand.

While most brokerage firms have embraced teams, some have not. This report can serve as guidance when choosing teams for your brokerage.

Production of teams vs. individual agents

RealTrends has provided verified ranking information since 2007 for individual agents and teams in the United States. These rankings are based on calendar year data submitted by these agents and teams and verified through third-party sources, often their brokerage firm or national brand network.

Starting in 2011, RealTrends started to compare the performance of the highest-producing 250 individuals with the highest-producing 250 teams. For this report, we looked at data from 2011 through 2022.

Teams win on per-person business increases

The 250 top-producing individual agents increased their per-person business by 13.9% in terms of closed transactions from 2011 to 2022. The 250 top-producing teams increased their per-team business by 405.4% in terms of closed transactions from 2011 to 2022.

When reviewing the median changes, the difference is not as stark. The top 250 individual agents median growth was 6% versus the top 250 teams at 240.7%, both well below the average change.

Volume growth rates show individual growth wins

Also, when looking at changes in volume the difference in growth rates was much closer.  The top 250 individuals had average sales volume growth of 257.3% from 2011 to 2022 while the top 250 teams had average growth of 288.9% over that period.  And when looking at median growth rates, the individual agents grew faster than the teams:  210.3% versus 117.0%.

While teams grew their closed transactions faster than individual agents, in terms of volume there was not much difference. Individual agents were selling higher-priced homes more frequently than teams did.

Clearly, over the last decade teams have grown far faster than individual agents in terms of closed transactions. This is not unexpected, as teams have the ability to scale their business far easier and faster than an individual agent.

Teams see average price of home sold decrease

However, in terms of the average price of properties closed, the report shows that it is individual agents who have had the upper hand. The top 250 individual agents saw the average price of the homes they sold increase by 761.6% from 2011 to 2022, while teams saw their average price decrease by 23.1% over that same period.

This last factor was likely influenced by teams focusing on general lead generation while individual agents are more focused on relationship-driven business.  Higher priced homes are generally not the purview of those engaged in large scale lead generation.

The downturn of 2021 to 2022 tells an interesting story

Apart from reviewing the 2011 to 2022 results we looked at what happened in the first downturn of this period.  And there we found some interesting trends.

Individual agents clearly outperformed teams. For example, the change in the average number of transactions for the top 250 individuals was down 11.6% from 2021 to 2022 while the top 250 teams suffered a decline of 21.5%; in median results, individual agents were down 16.6% while teams were down 38.5%.

Among these same top 250 rankings, individual agents were down 10.7% in average volume, while the top 250 teams were down 45.3% in average volume.  These are startling findings, and we doubt anyone would have predicted these kinds of results.

Takeaways

Teams are able to scale their businesses to generate larger volumes of transactions than individual agents. That is not a surprise. What is a surprise is that individual agents are making up a significant part of that disadvantage by serving a higher-priced clientele. The data shows this conclusively.

And if the one year downturn is any indication, top individual agents operate more durable businesses than do team when the market turns negative.

Steve Murray is a senior advisor for HW Media and a partner with RTC Consulting. All data based on RealTrends + Tom Ferry The Thousand rankings from 2011-2022.

From 1998 to 2006, according to Freddie Mac, the median annual mortgage rate was 6.45%. At the same time, the median, annual average of existing home sales was 5.63 million units. Therefore, there were more housing sales in 1996 than there will be this year.

Mortgage rates today are not much higher than they were then. But today, there are 30 million more households (129 million) than there were in 1996 (99 million).

It goes to show what the failure to build enough homes from 2006 to the present combined with ultra-low, unrealistic mortgage rates and massive amounts of fiscal stimulus can do to the housing market. This is something that housing industry leaders should be thinking about — carefully.

The history of housing

Existing home sales hit 4 million units in 1978 for the first time. They fell by 25.3% from that level in 1980, fell another 18.8% in 1981 and by another 15.9% in 1982. Altogether, the last time the Fed hammered inflation with a rise in lending rates, housing sales fell 49% from the peak in 1978 to the trough of 1982 before bouncing upward by 39% in 1983 over 1982’s low.

One challenging historical fact is that while mortgage rates fell from 13.24% in 1983 to 7.81% in 1996, it took that long for housing sales to reach the levels they did in 1978 to 1979. During that time, total households in the U.S. grew by 16 million — just about 20% growth in the number of households in a time where housing sales were essentially flat for 17 years.

The next major downturn, which started in 2006, saw unit sales fall 10.3% from 2005 to 2006, then another 22.4% from 2006 to 2007 and another 20.9% from 2007 to 2008. There was a slight upturn in 2009, with unit sales increasing by 2.6% from 2008 to 2009. The total downturn was 44.9% in unit sales from the peak of 2005 to the trough of 2008.

While we generally understand that the unit sales of 2003 to 2005 were fed by fraudulent mortgage activities; nonetheless, unit sales in the record year of 2021 were only 4.1% ahead of those in 2003. When the average annual mortgage rate was 6.54% — or not all that much less than it is today.

How much of an impact do mortgage rates have?

Some of this data may indicate that mortgage rates have less of an impact on housing sales than we may believe. Other factors are likely to do with the explosive price increases of the last two years, especially as those relate to average household incomes.

Back to what has gone wrong. The lack of supply of new homes, both single-family detached, and multi-family (supply) has been overwhelmed by the availability of historically cheap mortgage finance and the enormous depth of financial resources of households. Recent Federal Reserve Board estimates are that American households have nearly $18 trillion of cash and marketable securities in their possession. 

This is basic economics. When demand exceeds supply you get inflation, period. 

Since the real housing market began its last recovery, it is estimated that between 4 to 5 million more households were created than houses of any kind were built. Demand crashed into supply and overwhelmed it. Too few houses and too much capital chasing them resulted in the explosion of the values of homes, apartment buildings and raw land to build them on.  This has resulted in a decline in affordability on a massive scale. 

The Fed’s attempt to cool off the economy to bring down inflation is necessary for many reasons. One of the biggest reasons is to soften housing prices so that affordability may come back to earth. However, if the country doesn’t find a way to significantly increase the supply of homes of all kinds, we will end up right back where started.

Steve Murray is a senior advisor to RealTrends and founder of RTC Consulting.

This column does not necessarily reflect the opinion of RealTrends’ editorial department and its owners.

To contact the author of this story:
Steve Murray at smurray@realtrends.com

To contact the editor responsible for this story:
Tracey Velt at tracey@hwmedia.com