The real estate industry has operated in largely the same way for decades. But when you take a closer look at how traditional brokerages function, it becomes clear why commissions have historically stayed high—and why this system doesn’t always benefit consumers. Let’s break down the economics behind these brokerages and how this impacts buyers and sellers.
The Simple Economics of a Brokerage
At its core, the economics of a real estate brokerage are straightforward: more agents mean more sales, which leads to more revenue through commission splits. This is the main driver for brokerages today. Each agent who closes a deal generates income for the brokerage, as they typically split the commission. The more agents a brokerage has under its roof, the more revenue they stand to collect from each transaction.
But this model comes with its downsides. The focus for many brokerages isn’t always on maximizing the marketing of their clients’ properties—it’s on recruiting as many agents as possible to increase revenue. This focus creates a ripple effect, leading to some of the inefficiencies we see in the industry today.
Why Brokerages Focus on Recruiting Agents
Most brokerages prioritize agent recruitment over everything else because it’s the quickest path to revenue growth. To attract agents, brokerages go all out, offering luxury office spaces, fancy amenities, expensive events, and even exclusive conferences. While this sounds great for agents, it comes with a hefty price tag that’s ultimately passed on to the consumer.
Brokerages invest heavily in recruiting efforts, and the cost of these efforts is built into the commissions paid by clients. The more luxurious and attractive the brokerage environment, the higher the overhead costs, which means higher commissions are necessary to maintain profitability. Essentially, consumers are paying not just for the services they receive but for the brokerage’s ability to lure in more agents.
Why Commissions Stay High
The combination of agent recruitment costs, luxury office environments, and the fractured nature of the system is why commissions have stayed high for so long. With brokerages focused on attracting more agents rather than maximizing the value for their clients, consumers end up paying inflated fees that don’t always translate to better service. The inefficiencies in the system, from the way agents are structured to how revenue is generated, all contribute to a bloated and costly process for buyers and sellers.
The Need for Change
The traditional real estate model, built around agent recruitment and independent contractors, doesn’t serve the best interests of consumers. With the commission structure propping up an inefficient system, clients are left paying for services that don’t always deliver the value they expect. It’s time for a new approach—one that prioritizes collaboration, transparency, and a focus on delivering the best possible experience for every client, not just growing agent rosters.
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