Real Estate Firms Expect Rising Profitability

Washington, DC, Sept. 12, 2013 -- Most real estate firms are small, independent businesses that specialize in residential brokerage, with 69% of all firms expecting profitability to increase over the next year, according to the 2013 National Association of Realtors Profile of Real Estate Firms.

Paul Bishop, NAR vice president of research, said the industry sees greater competition in tandem with the housing market recovery.

“Two out of three real estate firms expect competition in the marketplace to increase, both among firms and nontraditional market participants,” he said.

“Because real estate is an entrepreneurial field, some experimentation in business models is likely when the market is in a recovery phase.”

Eighty-four percent of real estate firms are independent, non-franchised companies, while 13% are independent franchises; the rest are subsidiaries of a national or regional corporation. Independent firms generally have fewer agents and lower sales volumes.

Eight out of 10 firms specialize in residential brokerage, with commercial brokerage and residential property management the most common secondary functions, each offered by nearly four in 10 residential brokerages.

Other primary business specialties at real estate firms include residential property management, 6%; and commercial brokerage and residential appraisal, 5% each.  Smaller shares of real estate firms focus on land development, commercial property management, commercial appraisal, relocation, counseling, international and auction.

The typical real estate firm has been in business for 13 years; 80% of firms operate out of a single office and have a median of two licensees.  Only 8% of firms have four or more offices, but have a median of 100 licensees.  Larger firms were more likely to have increased staffing; firms with four or more offices added a median of 10 licensees during 2012.

NAR President Gary Thomas, broker-owner of Evergreen Realty in Villa Park, California, said a sizeable number of firms are expanding.

“Although conditions vary around the country, 45% of real estate firms are actively recruiting agents, largely due to growth in their primary business,” he said.

“As for challenges over the next two years, six in 10 firms cite profitability, 44% identified local or regional economic conditions, and 42% are concerned about both maintaining sufficient inventory and keeping up with technology.”

The typical residential real estate firm handled a median of 25 transaction sides in 2012, representing a dollar volume of $4.4 million.  Ten percent of a firm’s median sales volume was generated by a website, but less than 1% came from social media; however, firms with three or more offices obtained 5% of their business through social media.  The vast majority of sales were from prior relationships with clients and from referrals.


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