Trends 2024: The 4 main brokerage models, and how they’ve changed
Most brokerage companies follow a traditional commission-split model, but the landscape is shifting, with some major firms adopting new approaches.
Editor's note: Since 2006, the Swanepoel Trends Report has provided in-depth research and analysis to help leaders understand the forces shaping residential real estate. This exclusive series of excerpts highlights each trend featured in the 2024 report, which was released in November 2023.
4 Primary Brokerage Business Models: The traditional way of operating a brokerage company has endured for decades, but competition from newer firms — particularly those that offer revenue or profit sharing — is prompting some brokerages to consider adopting these features or overhauling their model altogether. This excerpt outlines the four leading models and looks at what's changed in recent years.
Based on careful analysis, T3 Sixty has identified the industry's four primary brokerage business models: traditional, capped, fee-based and business generation.
Traditional
A majority of the US's over 100,000 real estate brokerages practice the traditional brokerage business model. The model features brokerages leveraging independent contractor agents to help consumers purchase and sell real estate.
In the traditional model, brokerages typically share the majority of the commission they receive on transactions with the real estate agent who wins the business and ushers consumers through a transaction. Agents often command higher splits for the business they generate themselves.
Examples: Compass, Anywhere Advisors, HomeServices of America
Capped
In the capped real estate brokerage model, like in the traditional model, brokerages make most of their brokerage revenue through commissions consumers pay them. These firms, however, share commissions on the deals their agents do up to a set amount each year.
After the commissions the brokerage earns through an agent reaches that cap amount in the set 12-month period, the agent keeps all or nearly all of the additional commission paid to the brokerage on deals they do. Many of these brokerages still collect transaction fees even after agents cap.
Examples: eXp Realty, The Real Brokerage, Keller Williams franchisees
Fee-based
Many brokerages charge fees to agents designated for transactions, technology, errors and omissions insurance and other services.
What sets fee-based brokerages apart from others and what defines those in this model is that they charge their agents a monthly or annual membership fee, a per-transaction fee, or a mix of both. For brokerages to fit this model, those fees collectively account for a majority of their brokerage revenue. In exchange for those fees, these brokerages pass most or all of the commissions generated on a transaction agents manage to those agents.
Examples: HomeSmart, United Real Estate, Fathom Realty
Business generation
In the real estate brokerage business generation model, brokerages generate the bulk of the business that their agents do. The so-called teamerage falls within this category of brokerage business model.
These brokerages tend to have a team structure, with a high division of labor. Because they generate such a high percentage of leads, the firms relentlessly measure and refine the conversion rates of leads generated and have the systems, processes and structures to convert them at extremely high levels.
Examples: Redfin, Mark Spain Real Estate, Jason Mitchell Group
Change from 2017 to 2022
From 2017 to 2022, the brokerage model landscape among the US's 100 largest companies changed significantly. The biggest change was a drop in 17 brokerages with a traditional model. The capped model saw the biggest jump: eight additional brokerages in 2023 from 2018. Totals of seven additional brokerages with fee-based models and two additional with business generation models joined the top 100 cohort over that six-year period.
Key model growth features
Brokerages have leveraged two key business model features in recent years to achieve staggering growth: revenue sharing and equity grants. Both provide agents with sources of passive income that the firms use to incentivize recruiting and production and aid retention.
T3 Sixty anticipates that an increasing number of brokerages will apply versions of these extremely powerful model features.
Read the full chapter: Digital and printed copies of the 2024 Swanepoel Trends Report are available for purchase at T3 Trends.
Note: T3 Sixty and Real Estate News share a founder, Stefan Swanepoel.