At the close of the first half of 2023, key metrics – agent count, transaction volumes, and overall profitability – highlight a brokerage industry evolving along two paths.

Why it matters: In my recent Inman presentation, I unpacked what a Netflix vs. Blockbuster moment in real estate would look like, and how a receding tide reveals business model resiliency and clues about future growth.

Earlier this year, I suggested that “to identify the brokerage business models of the future, one simply needs to follow the agents.” (Read more: Agent Migratory Patterns.)

• There is a clear split between the low-fee brokerage models that are attracting agents, and the legacy brokerages that are shedding agents – a trend that continues in Q2.

• The notable change is Compass, which once again grew its agent count after shedding around 400 agents during Q1 – putting the company back on the growth side of the ledger.

The net change in agents is correlated to brokerage transaction volume; in general, more agents yield more transactions.

• The overall market was up 37 percent in Q2 compared to the previous quarter, which can be attributed to seasonal growth.
   

• The most notable outliers of the past quarter are Real and Compass, which both significantly outperformed the market.

And transaction volumes directly correlate to brokerage revenue.

• Overall brokerage revenues are depressed in 2023, and continue to follow seasonal trends.
   

• Compass has maintained its revenue leadership position, with eXp making significant gains over the past two years (while industry incumbent Anywhere has lost its top spot).

Overall brokerage profitability, a function of revenue and a company’s operating expenses, is clearly split into two camps.

• The legacy brokerages had a much better Q2 (including Compass being cash flow positive), but are still unprofitable at a Net Income level for the first half of the year.
   

• With significantly lower fixed costs and operational overhead, the low-fee brokerage models continue to have a structural advantage, and are operating much more profitably than legacy brokerages in the down market.

The bottom line: In my recent Inman presentation, I outlined what a Netflix vs. Blockbuster moment in residential real estate would look like.

• Incumbents would have a stagnant market share with high fixed costs and a limited ability to evolve, while disruptors would be exponentially gaining market share with an easy to define unfair advantage.

• The shifting market – the receding tide – is revealing these changes across the industry, leading to a bifurcation of business models with key differences in market share, growth, and profitability.