A variety of powerful forces exert significant downward pressure on real estate commissions. The continued rise in home prices has facilitated the elevation of real estate earnings based on commissions. Those earnings have not gone unnoticed by consumers, who are responding by placing increased pressure on real estate agents to reduce their commission rates. As a result, many fear a gradual downward slide or a realignment of fees as charged in other countries in the world.

Real estate law, which in most states requires brokers to supervise their agents, often conflicts with labor laws governing independent contractors. Furthermore, there are issues concerning the involvement of the IRS and the National Labor Relations Board that present challenges. These conflicts have opened the door for attorneys to bring suit against Boston Pads, Coldwell Banker, Redfin, and ZipRealty, claiming these organizations have misclassified their agents as independent contractors rather than employees. The lawsuits assert that the labor laws controlling independent contractor status should take precedence over real estate law. Employment law defines independent contractors in such a way that broker supervision can appear to undermine a contractor’s independence. One of the widely adopted tests to determine a person’s status is the Economic Reality Test (used by the U.S. Supreme Court) that examines the degree of employer control, the relative investment of both the employee and the employer, the opportunity for profit, the skill required, and the permanency of the relationship.

Unlike brokers, the majority of agents do not have the same level of financial investment in the industry. Many agents have been unable and/or unwilling to effect the changes the brokers need to build effective and profitable businesses. It remains a numbers game and brokers frequently don’t make decisions that are in the best interests of the brokerage, they make decisions to appease their top-producing agents. With the growing impact of technology, consumers are now wielding newfound power and imposing increased demands on the brokers through their agents, which further complicates the existing model and favors change.

The significant increase in the liquidity of residential real estate brought on by the slow down starting in 2006, the emerging foreclosure crisis of 2007, and the recession of 2008, created the peril that institutional investors would acquire and control major housing resources as a sound long-term investment asset. Over the past few years Residential Real Estate Investment Trusts (RREIT) have grown and publicly traded companies like Blackstone and Colony Financial currently own one and a half percent of the approximately 14 million rental homes in the U.S. RREITs have expended $20 billion to acquire somewhere near 200,000 single-family rentals in just the last two years. The type of single-family rentals desired by RREITs and their location is remarkably consistent: the ideal asset is a three-bedroom, two-bathroom house in a good school district and close to jobs. Like individual homebuyers, these institutional investors prefer long-term appreciation and therefore their target markets are infill neighborhoods over the new “exurban” communities.

A tech company cracks the code and connects enough of the dots to conduct real estate transactions without the need of an agent. The industry has always had a group of homeowners that have attempted to conclude the sale of their home without the help of a licensed real estate professional, thereby attempting to save all or a part of the commission.

Commonly referred to as FSBO (For Sale By Owner), this market segment has historically remained constant at around 10 percent of the total market. While certain lower economic profiles may be the central focus of today’s growing consumer cash consciousness, it isn’t the only driving force. There are consumers who consider independence from institutional norms to be a symbol of successful lives. Self-healing, doing your own taxes, growing your own food, and involvement in all aspects of life are positive personal goals for many.

With the Millennial Generation drawing closer to its natural home buying juncture, it’s obvious that their “first time” will not be as easy as it was for the Civic or Boomer generations. To start with, the opening economic profile for the Millennials is not what it was for their predecessors. It’s generally believed that the younger generations will have less cash to work with and more challenging financial thresholds to meet. As a result, Millennials will be looking for ways to shave costs from their real estate transaction. At the other end of the spectrum are the Boomers who are seeking to downsize from large homes to more affordable, “sized right,” and accessible housing options. Their primary objective will be to convert as much of their equity into cash as possible. Shaving costs from their real estate transaction may also become increasingly important.