NAR 2006 Survey of Real Estate Firms Shows Diversity and Competition

Chief economist says wide array of available services provides clients with customized offerings that meet increasingly sophisticated expectations
Chief economist says wide array of available services provides clients with customized offerings that meet increasingly sophisticated expectations

RISMEDIA, October 26, 2006-Real estate firms vary widely in size and specialize in a variety of business activities, fueling competition that benefits consumers, according to The 2006 National Association of Realtors® Profile of Real Estate Firms: An Industry Overview.

David Lereah, NAR’s chief economist, said the wide array of available services provides clients with customized offerings that meet increasingly sophisticated expectations. ?The diversity of real estate firms and business models allows both large and small firms to compete side-by-side, spurred by the growth in technology,? he said.

Eighty-four percent of real estate firms offer secondary business activities, and an increasing number of firms offer related business activities and services. More than three-quarters now offer one or more ancillary services, up from half of firms in 2004.

?Different business models help to match consumer needs to services, and technology has streamlined many operational activities, allowing for more efficient communication with clients ? but it’s no substitute for personal contact,? Lereah said. ?Most buyers and sellers rely on the expertise of real estate professionals to help them with all aspects of the transaction process, from shopping or listing to negotiation and closing.?

Almost eight out of 10 real estate firms have a Web site that’s been online for a median of five years. While the vast majority of firm Web sites feature real estate listings, three out of five include mortgage or financial calculators; over half have community information.

More than half of real estate firms have been in business for 15 years or more, and 80 percent of firms operate out of only one office with a median of five licensees. Only 10 percent of firms have three or more offices.

NAR President Thomas M. Stevens from Vienna, Va., said the diversity of real estate firms is a natural outgrowth of the entrepreneurial spirit of real estate professionals.

?There is a definite creativity and striving for success that breeds the wide variety of business models and services we see today,? said Stevens, senior vice president of NRT Inc. ?Ultimately, it’s consumers who determine which of those succeed and the popularity of various services that are offered by real estate firms.

?It’s fairly well known that there are numerous real estate brokerage options in today’s market, ranging from full-service to discount brokerage in addition to flat fees, fee-for-service and even hourly rates. What’s sometimes overlooked is that the lion’s share of the real estate agents and brokers at those firms are Realtors?,? Stevens said. ?Although most consumers opt for full-service brokerage, the other types of firms and services are an important part of the marketplace as well as NAR membership.?

Eighty-one percent of firms offer residential brokerage, and 36 percent provide commercial brokerage as a secondary activity; 55 percent of large residential firms have a relocation department. In terms of primary real estate activity, 81 percent focus on residential brokerage, 6 percent commercial, 5 percent property management and 3 percent appraisal; 6 percent focus on other areas.

Secondary services offered by firms include property management, 41 percent; land and development, 22 percent; residential brokerage (for firms with other primary activities), 22 percent; relocation, 20 percent; appraisal, 13 percent; counseling, 10 percent; auction, 4 percent; and international, 3 percent.

Many related business activities or services are offered in-house by real estate firms, or offered through outsourcing or a business relationship with another firm. Among in-house offerings, 36 percent of firms offer business brokerage (the buying and selling of businesses such as retail stores), 24 percent relocation services, 12 percent mortgage lending, 8 percent home warranty, 5 percent title or escrow services and 5 percent home improvement. Smaller categories include settlement services, homeowners insurance, other insurance, home inspection, moving services and securities brokerage.

With the exception of business brokerage and relocation services, the typical firm offers all of the other services at higher levels through outsourcing or business relationships.

More than six in 10 firms increased technology spending in 2005, and 41 percent planned on additional technology spending in 2006 while another 56 percent anticipated they would maintain the same level of spending.

Given the localized nature of many real estate services, three out of five firms specialize in a particular geographic area. That ranges from 65 percent of residential firms to 38 percent of commercial firms.

Stevens said training plays a major role in a company?s success. ?Real estate firms understand the importance of training and education programs that keep their staff on top of the latest trends. These programs allow agents and staff to learn from others? experience in this fast-changing marketplace.

Seventy percent of all firms provide training for both staff and sales agents. Eight of out 10 firms said their training programs contributed to their ability to acquire listings.

Two-thirds of real estate firms report higher profits in 2005, including 66 percent of residential brokerages and 72 percent of commercial firms.

Nine out of 10 residential brokerages with five or fewer licensees operate out of a single office, while over half of firms with 51 or more licensees have three or more offices.

The typical firm has a median of six licensees and one staff person. Among all firms, 73 percent report that all of their full-time licensees are independent contractors, along with 80 percent of part-time licensees. Just over half of firms reported no licensee left the firm in 2005, while 64 percent had at least one licensee join the firm.

Only 27 percent of firms offer health insurance to their independent contractors, although the licensee typically pays the full cost. Nearly eight in 10 firms provide errors and omissions insurance for independent contractors.

Twenty-three percent of all firms are affiliated with a franchise, which has remained relatively constant since 1999. However, franchise firms are larger and account for 55 percent of the total sales force. The typical franchised firm has had their affiliation for 11 years.

Twenty-six percent of firms are members of a national or international referral-relocation network.

The 2006 National Association of Realtors® Profile of Real Estate Firms: An Industry Overview was based on a 74-question survey mailed to a national sample of 39,000 real estate firms during March of this year, generating 2,368 usable responses. The response rate was 6.1 percent, with an overall margin of error of plus or minus 2.0 percent. This included a survey mailed to each of the 500 largest firms to assure adequate representation. The responses were weighted to be broadly consistent with information from the U.S. Census Bureau regarding the distribution of firms by size.

The survey can be ordered by calling 800/874-6500, or online by clicking here. The cost is $50 for NAR members and $125 for non-members.

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