Square Foot Homes has released a detailed analysis following the settlement with the National Association of Realtors (NAR), which drastically changes the long-standing commission model in real estate transactions. This landmark agreement could potentially slash real estate commissions by 25% to 50%, marking a significant shift for buyers, sellers, and agents.
The report explores the repercussions of these commission reductions on the income of real estate agents, comparing these new earnings prospects to the average salaries across states.
Highlights of the Report
Initially, agents involved in an average of 12 property transactions per year in any of the 50 states could expect earnings that exceed the state’s average salary by 50% to 300%.
Impact Assessment of Potential Commission Reductions:
- Without any adjustments to commissions, agents managing 12 sales a year could achieve earnings between 50% and 300% higher than the state average salary.
- With a 50% cut in commissions, the analysis indicates that agents in 19 states, including Ohio, Iowa, and Michigan, might not only experience a reduction in income but could also earn 24% to 26% less than the national average salary.
- In 12 states, such as Illinois and Missouri, agents’ incomes could align more closely with or slightly dip below the average state salary. This represents a shift from their previous positions, where earnings could range from 50-70% above the state average. In contrast, agents in 7 states, like Minnesota and Connecticut, who previously earned nearly twice the state average, might see their income advantage significantly reduced to more closely match the state averages.
- For agents in 28 states, including New Jersey, Florida, California, and Texas, who previously enjoyed earnings 100-300% above the state average, the projected income range would now fall between 5% to 100% above the state average, indicating a notable decrease.
Below are the comprehensive findings of the study:
| State | Earnings Before Commission Change ($) | Earnings After Commission Change ($) | Average State Salary ($) | Earnings Over State Average Before Change (%) | Earnings Over State Average After Change (%) |
| Ohio | $83,514 | $41,757 | $56,530 | 47.73% | -26.13% |
| Iowa | $81,162 | $40,581 | $53,520 | 51.65% | -24.18% |
| Michigan | $88,059 | $44,029 | $58,000 | 51.83% | -24.09% |
| Illinois | $97,881 | $48,941 | $63,930 | 53.11% | -23.45% |
| Missouri | $90,180 | $45,090 | $54,520 | 65.41% | -17.30% |
| Indiana | $88,962 | $44,481 | $53,500 | 66.28% | -16.86% |
| North Dakota | $92,844 | $46,422 | $55,800 | 66.39% | -16.81% |
| Oklahoma | $85,434 | $42,717 | $50,940 | 67.72% | -16.14% |
| Pennsylvania | $98,940 | $49,470 | $58,470 | 69.21% | -15.39% |
| Kentucky | $89,565 | $44,783 | $51,490 | 73.95% | -13.03% |
| Louisiana | $89,058 | $44,529 | $50,940 | 74.83% | -12.59% |
| Kansas | $94,383 | $47,192 | $52,850 | 78.59% | -10.71% |
| Arkansas | $88,110 | $44,055 | $48,570 | 81.41% | -9.30% |
| Nebraska | $101,115 | $50,558 | $55,070 | 83.61% | -8.19% |
| Wisconsin | $104,493 | $52,246 | $56,120 | 86.20% | -6.90% |
| Minnesota | $121,116 | $60,558 | $63,640 | 90.31% | -4.84% |
| Delaware | $119,079 | $59,540 | $62,260 | 91.26% | -4.37% |
| Mississippi | $87,717 | $43,858 | $45,180 | 94.15% | -2.93% |
| Alabama | $98,484 | $49,242 | $50,620 | 94.56% | -2.72% |
| Alaska | $130,653 | $65,327 | $66,130 | 97.57% | -1.22% |
| Connecticut | $141,729 | $70,865 | $69,310 | 104.49% | 2.24% |
| Maryland | $146,733 | $73,367 | $69,750 | 110.37% | 5.19% |
| West Virginia | $106,224 | $53,112 | $49,170 | 116.03% | 8.02% |
| Texas | $124,233 | $62,117 | $57,300 | 116.81% | 8.41% |
| Georgia | $130,632 | $65,316 | $58,000 | 125.23% | 12.61% |
| South Dakota | $112,485 | $56,242 | $49,890 | 125.47% | 12.73% |
| New Mexico | $125,499 | $62,749 | $54,400 | 130.70% | 15.35% |
| Virginia | $151,383 | $75,691 | $65,590 | 130.80% | 15.40% |
| Vermont | $138,057 | $69,029 | $59,190 | 133.24% | 16.62% |
| North Carolina | $131,298 | $65,649 | $56,220 | 133.54% | 16.77% |
| Maine | $135,489 | $67,744 | $55,960 | 142.12% | 21.06% |
| New York | $183,672 | $91,836 | $74,870 | 145.32% | 22.66% |
| New Jersey | $174,090 | $87,045 | $70,890 | 145.58% | 22.79% |
| Tennessee | $132,768 | $66,384 | $52,820 | 151.36% | 25.68% |
| Rhode Island | $163,644 | $81,822 | $64,530 | 153.59% | 26.80% |
| South Carolina | $131,361 | $65,681 | $50,650 | 159.35% | 29.68% |
| New Hampshire | $162,498 | $81,249 | $62,550 | 159.79% | 29.89% |
| Florida | $145,566 | $72,783 | $55,980 | 160.03% | 30.02% |
| Arizona | $156,033 | $78,017 | $58,620 | 166.18% | 33.09% |
| Nevada | $156,093 | $78,047 | $55,490 | 181.30% | 40.65% |
| Wyoming | $153,339 | $76,670 | $54,440 | 181.67% | 40.83% |
| Massachusetts | $216,018 | $108,009 | $76,600 | 182.01% | 41.00% |
| Oregon | $179,211 | $89,605 | $62,680 | 185.91% | 42.96% |
| Washington | $217,230 | $108,615 | $72,350 | 200.25% | 50.12% |
| Colorado | $212,610 | $106,305 | $67,870 | 213.26% | 56.63% |
| Idaho | $167,805 | $83,903 | $51,350 | 226.79% | 63.39% |
| Utah | $192,423 | $96,211 | $57,360 | 235.47% | 67.73% |
| Montana | $180,924 | $90,462 | $52,220 | 246.47% | 73.23% |
| California | $279,618 | $139,809 | $73,220 | 281.89% | 90.94% |
| Hawaii | $260,163 | $130,082 | $61,420 | 323.58% | 111.79% |
About the Study:
To calculate the metrics that reveal the impact of commission cuts on real estate agents’ earnings relative to state and national average salaries, we followed a detailed process:
Data Preparation: We started with a dataset that included information for various states, such as the median home sale price over the past 12 months, how many home transactions an average realtor is involved in per year, real estate agent earnings before and after a hypothetical commission cut (6% to 3%), and the average salary per state for all occupations.
Percentage Above Average Calculation: For each state, we calculated the percentage by which real estate agent earnings before and after the commission cut were above the state average salary. This was done by subtracting the state average salary from the real estate agent’s earnings (both before and after the cut) and then dividing by the state average salary. The result was multiplied by 100 to get a percentage.
National Average Salary: We computed the national average salary by taking the mean of the state average salaries provided in the dataset. This gave us a baseline to compare against real estate agent earnings on a national scale.
Analysis: With these calculations, we analyzed:
- The number of states where realtors earned more than the state average salary before the commission cut. This showed the financial attractiveness of the real estate profession under the traditional commission structure.
- The number of states where realtors’ earnings would fall below the national average salary after the commission cut. This highlighted the potential financial impact of the commission cuts on a national scale.
- The number of states where realtors’ earnings would remain above the state average salary after the commission cut. This indicated the relative financial viability of being a realtor post-commission cut.
- Through these steps, we were able to derive insights into the potential effects of the NAR’s landmark commission reforms on real estate agents’ earnings compared to average salaries, reflecting the necessity for industry adaptation in response to changing financial dynamics.
Overall, our analysis provides projections based on the anticipated impact of commission rule changes in the real estate sector, suggesting a 25% to 50% reduction in commissions. These figures are based on several assumptions, and the actual outcomes will depend on how realtors and the market adapt. These changes create opportunities for innovation within the industry rather than simply predicting a halving of realtors’ earnings. The future will likely see agents evolving their business strategies to align with the new commission flexibility, underscoring the dynamic nature of the real estate market in responding to regulatory shifts.
