Anxiety Over Commission Lawsuits Looms Over Agent Recruitment Battle

This report — the third installment in Inman’s Recruiting War ’24 series — was originally published on May 27, 2024, exclusively for subscribers of Intel, the data and research arm of Inman. Subscribe to Inman Intel for a deeper analysis of the business of real estate.

“People are worked up about the industry losing half its membership.”

That’s what Russ Cofano, a long-time real estate industry veteran and CEO of Collabra Technology, said when asked this spring about how the commission lawsuits might intersect with recruiting efforts. The point is that with big changes on the horizon, there is a simmering fear in the industry that the agent pool is about to shrink significantly.

Cofano is actually skeptical that any such outcome is likely.

But many are concerned right now about shrinking agent ranks, which highlights the way that the impacts of commission litigation are rippling out into different parts of the real estate business. The lawsuits and settlements — from the National Association of Realtors, major franchisors, and others  — aren’t just about agent pay. They also intersect with the competition for talent.

That at least is the takeaway from the Inman Intel Index survey in March, which is when we last asked brokers and agents about these issues. In previous installments of this series, we revealed survey results showing how agents are fielding near-constant recruiting pitches, and that amid an evolving market brokers’ efforts have shifted their focus to top producers.

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But the survey also shows that the commission lawsuits are a major source of anxiety for many members of the real estate industry. And that anxiety extends to worries about talent and the labor pool.

The good news, however, is that some of the smartest minds in the industry don’t think a recruiting apocalypse is nigh. Instead, they think coming changes may put more pressure on some agents — and present an opportunity to brokers who can capitalize on the moment.

Commission lawsuits as a challenge for recruiting

Intel asked brokerage leaders in March about the biggest recruiting challenges in 2024.

• The market was the biggest single challenge for leaders: A plurality of respondents, or about 43 percent, pointed to this issue. That makes sense because despite high hopes at the beginning of the year, more recently there has been speculation that rates won’t fall as soon as hoped.
• Worry about commission litigation is on par with concerns about the market: Among brokerage leader respondents, roughly 24 percent selected “lawsuit uncertainty” as the number one recruiting challenge in 2024. That alone is significant, but equally telling is the fact that another 15 percent indicated that the lawsuit-adjacent issue of commission and compensation demands would be this year’s biggest challenge.

Another 7 percent selected “other” and provided free response answers. The topics raised in those answers varied, but the most common comments had to do with various lawsuit-related issues.

• “Agents are going to wait to make a move until things settle […] in terms of buyer’s commission compensation,” one respondent wrote.
• “Anti-trust with MLSs and Realtors,” another said.
• “The commission issue needs to be settled so agents can leave the business and the ones left will be able to figure out that lower fees are good for everyone,” yet another person argued.

The point is that when all the survey responses that touch on commissions and commission lawsuit-related challenges are combined, that issue looms at least as large as market uncertainty.

The survey results also show that the commission suits are weighing on industry members generally.

• Agents are dissatisfied: Among agent respondents to the survey, a large plurality, or about 41 percent, indicated that they are not satisfied with NAR’s settlement.
• Many of the “other” responses to this question also expressed dissatisfaction with the settlement.
  • “Absolutely not,” one person responded to the question about being satisfied, “the media has made huge false statements.” The comment typified the type of responses the question elicited.

The survey further found significant levels of ambivalence about NAR itself.

• A plurality of agent respondents, or 43 percent, indicated that they aren’t “sure anymore” if the organization is “a positive for the industry.”
• Fewer than a quarter of agent respondents, or 24 percent, selected the unequivocal “yes” when asked if NAR is a positive.

The survey also included an entirely free response question asking about “the most relevant question to ask a recruiter today.” Commission lawsuit issues were a recurring theme:

• “How will I as an agent have my commission be protected by this firm?”
• “How is the legal education and risk management structured?”
• “Will you be around?”

All of this shows that the commission lawsuits and settlements are hanging over the industry in anxiety-inducing ways. And it’s notable that real estate pros see the issue as specifically a recruiting challenge on par with the brutal market.

So will litigation throw a wrench into the recruiting gears?

Experts who spoke with Intel agreed that lawsuits and lawsuit settlements are likely to change the industry. But they generally don’t envision a metaphorical nuclear bomb.

Instead, they described something closer to an evolution that will change the way real estate professionals think about talent.

• The rise (or fall) of the middle-tier agent: Cofano doesn’t envision a huge exodus due to commission litigation. Why? Because many “licensees did no transactions last year.” Those people are holding on without doing deals now, so are unlikely to suddenly abandon real estate if it gets harder. Instead, Cofano thinks the big change will be that leaders expend “a lot of effort around the quality of the middle tier” — in other words, the agents who aren’t yet top performers, but who can close sales. Those agents will be under the most intense pressure from coming changes, but may also benefit as brokers work to elevate agents who want to stay in the business.
  • “Brokers are going to have to deliver more substantive value to those individuals in terms of the brokerage value proposition.”
  • “The level of recruitment is going to intensify. The winners are going to be the agents who are able to stick around and get the value.”
• Chaos is a ladder: Chris Heller, president of OJO and Movoto, thinks lower-skilled agents will gradually leave the business, but noted that agent ranks will shrink “over a number of years, not a couple of months.” The size of the agent pool matters for recruiting, of course, because the supply of labor will dictate the intensity of the competition; fewer workers means brokerages eager to grow their headcounts have to fight even harder. But Heller made a similar point to Cofano about agents in the middle of the pack.
  • “There are recruiting opportunities to take these agents who are struggling and say, ‘Hey, we have a process that works.’”
  • Heller also said that even with uncertainties on the horizon, it’s possible to seize the moment: “Whenever there’s change or upheaval and you throw a big rock in the pond, that creates opportunities.”

Email Jim Dalrymple II