Average real estate brokerage gross margin continues to decline

The dual shocks of the 2022–2024 housing market downturn and the outcomes of significant litigation are now in the rearview mirror. In response, many brokerage firms have adapted their business models to navigate these challenges. While these adjustments have allowed firms to achieve profitability at current sales levels and comply with the changes to MLS policies resulting from the settlement, it does not necessarily signal a return to the heights previously seen in the industry.

Agent competition is fiercer than ever

Competition for agents remains as intense as ever. Agents now have more choices than at any other time, including low-cost options. Consequently, the average gross margin for U.S. brokerage firms continues to decline, sitting near 10% by the end of 2024. Several national real estate entities now operate with gross margins below this threshold.

We anticipate that these economic pressures will accelerate industry consolidation, with mergers and acquisitions occurring at a faster pace than in previous years. Additionally, segmentation among brokerage firms is likely to increase, driven by differences in cost structures and technology adoption. While artificial intelligence may play a role, we suspect focus will remain on more effective deployment of foundational tools such as transaction management systems, sales management platforms, and robust CRM systems.

Despite the industry investing tens of billions of dollars in technology over the past three decades, the tangible benefits in terms of productivity or profitability remain limited. This suggests that other factors are at play. It has become increasingly clear that a strong culture centered on relationships between brokerage leaders and agents remains the cornerstone of a successful brokerage firm.

Brokerage M&A landscape is shifting

Over the past 45 years, the real estate industry has experienced two distinct waves of mergers and acquisitions. The first wave, which began in 1977 and lasted until approximately 1989, was driven by major players such as Merrill Lynch, Sears (Coldwell Banker), and several savings and loan banks. These entities ushered in a transformative era, during which many brokerage firms realized their businesses held significantly higher equity value than they had previously believed.

The second wave spanned from 1997 to 2022 and was dominated by firms like Anywhere Real Estate, HomeServices of America, Compass, The Hanna Companies, Peerage, and United Real Estate, among others. This period saw the acquisition of hundreds of brokerage firms, with valuations surpassing those achieved during the first wave.

Now, in 2025, the landscape appears to be shifting. It is unlikely that major players such as Anywhere or Berkshire Hathaway will re-enter the acquisition market in any significant capacity. While Compass, The Hanna Companies and United Real Estate remain active, many other large acquirers have either exited the market or substantially reduced their activity. This has created opportunities for regional, privately-owned companies and local firms to step in and drive acquisitions.

The era of a few large national firms acquiring regional and local independents may be coming to an end. If a third wave of mergers and acquisitions emerges, it will likely be led by regional and local firms. What sets this potential wave apart is that it will be fueled by individuals and organizations investing their own capital, rather than relying on public funding.

While acquisition prices and terms may not be as lucrative as those offered during prior waves, the volume of deals is expected to recover as the housing market stabilizes and brokerage performance improves. Thousands of small- to medium-sized firms may find that merging with another company represents the most logical path forward. As a result, the third wave will likely be characterized by regional and local firms taking the lead in acquisition activity.

Brokerage valuations down; terms changing

Currently, two key factors have contributed to the softening of residential brokerage firm valuations. First, the downturn in housing sales has generally reduced EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and Gross Margins across the industry. Second, the number of active purchasers and the amount of capital available for acquiring residential brokerage firms have both declined. There are fewer buyers in the market today, and those that remain often have less capital to deploy.

These dynamics have impacted not only the overall valuation of residential brokerage firms but also the terms that buyers are willing to offer. Valuation is typically calculated as a multiple of EBITDA or a percentage of Gross Margin, usually based on the most recent 12 months of performance. Once a price is determined, the terms are negotiated. This includes the amount of cash or consideration paid at closing and the remainder paid over several years — often tied to the future performance of the acquired firm.

Interestingly, while the multiples of EBITDA or percentages of Gross Margin that buyers are willing to pay have not significantly declined, overall valuations have dropped due to weaker financial performance among brokerage firms. Additionally, terms have shifted toward reduced cash payments at closing and longer payment periods extending into the future.

Despite these challenges, we believe mergers and acquisitions will remain a key growth strategy for many firms. Organic growth, whether through recruiting or productivity gains, is achievable but remains difficult and resource-intensive. Acquiring other brokerage firms will continue to play a critical role in the growth strategies of leading industry players.

As the financial performance of brokerage firms improves, their valuations are likely to rebound. Looking ahead, we anticipate a broader variation in valuations, driven primarily by differences in business models and financial performance.

As brokerage firms adapt to the evolving market dynamics, they will need to remain agile in order to navigate both the opportunities and challenges ahead. The continued competition for agents, ongoing mergers and acquisitions, and fluctuating valuations signal that the landscape is far from static.

While the path forward may not mirror the rapid growth seen in previous years, the industry’s ability to innovate and build strong, relationship-driven cultures will determine its long-term resilience and success.

Steve Murray is founder of RTC Consulting, a firm that specializes in real estate brokerage and team mergers, acquisitions and valuations. Murray is also a senior advisor for HousingWire.