Real estate fees projected to break $100 billion in 2021

Real estate brokers and agents received a substantial pay raise over the past year.

Real estate fees are projected to exceed $100 billion for the first time ever in 2021, according to Knock, a property technology company.

Despite advancements in technology making buying and selling real estate easier for consumers to do on their own, an overwhelming majority of consumers still choose to partner with an agent – 89%, according to Knock.

For some brief perspective, 2020 real estate fees totaled an estimated $90.5 billion. Knock estimates 2021 real estate fees to reach $105 billion – a number that will make history. Looking further back, real estate fees totaled roughly $60 billion in 2002, at the outset of the Millennium Boom. At that time, the typical percentage share of each transaction collected was 5.14%. In 2021, the average percentage fee per transaction is 4.94%.

Despite a lower percentage rate for agents, agents are getting paid significantly more per transaction today.

These projections are based on 2021 forecasts of 7.1 million homes sold and average home sale prices. Home prices have skyrocketed due to a supply-and-demand imbalance, increased purchasing power thanks to low interest rates and low inventory stemming from years of underbuilding.

But, while agent fees may be at record highs, agents are having to do significantly more work. In a typical market, most agents need to write up a handful of offers at most for each homebuyer. But in this market, characterized by bidding wars, an agent needs to write a dozen or more offers before their client finally secures a home — and that’s if their weary homebuyer doesn’t decide to throw in the towel in the process.

Working hard and working smart

With homes flying off the market left and right combined with a low inventory of homes for sale, few homes are left for agents to bid on for their clients and thus earn their fee.

It may seem impossible to catch up in this market. However, there are a few actions real estate agents can take when the housing market is experiencing volatility, as it is today following the 2020 recession. Some of these steps include:

purchasing property by bringing together investors, soliciting them to collectively contribute funds to buy the property and form a limited liability company (LLC) to complete the purchase [See RPI e-book Forming Real Estate Syndicates];
branching out into property management [See RPI e-book Real Estate Property Management];
shifting focus with marketing efforts to homebuyers and investors rather than sellers [See firsttuesday’s library of FARM Letters];
becoming a foreclosure or short sale specialist by studying the California rules protecting homeowners during the foreclosure process, the tax aspects of completing a foreclosure or short sale and the negotiations for discounts with mortgage lenders on negative equity properties [See RPI e-book Buying Homes in Foreclosure];
pivoting their expertise towards creative real estate arrangements, including carryback financing, helping seller’s properties stand out [See RPI e-book Creating Carryback Financing]; and
learning the rules for §1031 exchanges, which allows owners to sell their property while deferring the taxes on the profit or loss when they use sales proceeds to purchase like-kind property. [See RPI e-book Tax Benefits of Ownership Chapter 21]

The steep gains experienced in the real estate market during 2021 has increased competition between buyers and agents alike. But home values cannot keep ticking up indefinitely. The factors which will contribute to the pulling down of home prices include:

the expiration of the foreclosure moratorium, which will cause inventory to rise;
the elongated recovery in the jobs market, lacking support from further stimulus or job creation programs; and
decreased buyer purchasing power, as interest rates gradually increase.

As these factors play out in the months to come, expect foreclosures to begin impacting the market heading into 2022. The wave of foreclosures following the expiration of the moratorium and forbearance programs will pull down home values beginning in 2022, bottoming in 2023.

The real economic recovery will commence when jobs return. As of May 2021, California is down 1.4 million jobs compared to pre-recession December 2019 levels. Home sales will be characterized with an imbalance in supply and demand until Californians emerge from the effects of the jobless recession.

firsttuesday anticipates this economic recovery to begin in 2024-2025, with the timing and speed of recovery depending upon further extensions of the moratoriums or, most significantly, government-sponsored job creation.

Despite the record uptick in real estate fees in 2021, when foreclosures begin to affect the market as forbearance programs expire, real estate professionals will want a steady supply of fees. While sales are still hot, consider setting aside a portion of your earnings for the leaner months ahead.

Related article: