While the typical firm profile is similar to previous years, the future expectations of firms change as the real estate market evolves over time, as seen in the results from NAR’s 2014 Profile of Real Estate Firms.
In examining firm characteristics, this year’s report finds that 81 percent of real estate firms have a single office, typically with two full-time real estate licensees, and 81 percent of firms specialize in residential brokerage. Eighty-four percent of firms are independent, non-franchised companies and 14 percent are independent franchised companies.
In terms of firms’ business operations, the typical residential real estate firm’s brokerage sales volume was $4.7 million in 2013, while the typical commercial real estate firm’s brokerage sales volume was $4.3 million in 2013. Those with only one office had a median brokerage sales volume of $3.9 million in 2013, while those with four or more offices had a median brokerage sales volume of $187.5 million in 2013. Similarly, those with one office had a total of 18 real estate transaction sides in 2013, while those with four or more offices typically had 710 real estate transaction sides in 2013.
Firms typically had 30 percent of their customer inquiries from past client referrals, 25 percent from repeat business from past clients, 11 percent from their website, 5 percent through social media and 1 percent through open houses. Firms typically had 35 percent of their sales volume from past client referrals, 30 percent from repeat business from past clients, 10 percent from their website and 5 percent through social media. Firms report their current competition is most likely to come from traditional brick-and-mortar firms, followed by non-traditional market participants, and finally virtual firms.
In looking to the future, this year’s profile finds that 45 percent of firms reported they are actively recruiting sales agents in 2014. This is more common among residential firms (49 percent) than commercial firms (34 percent) and more common among firms with four offices or more (87 percent) than firms with one office (40 percent). Eighty-seven percent of firms reported the reason for recruitment is growth in primary business, followed by the desire for younger agents at 36 percent. Larger firms are much more likely to recruit for the desire for younger agents and to replace agents who are leaving the firm.
Reflecting a housing market showing signs of recovery, 64 percent of firms expect profitability (net income) from all real estate activities to increase in the next year. Commercial real estate firms are more optimistic as 71 percent expect profitability to improve, as well as large firms with four or more offices—69 percent expect profitability to improve.
Forty-eight percent of firms expect competition to increase in the next year (mid-2014 to mid-2015) from non-traditional market participants. Forty-one percent of firms expect competition during the same time period to increase from virtual firms, while only 16 percent expect competition will increase from traditional brick-and-mortar firms.
Profitability, keeping up with technology, maintaining sufficient inventory, and local or regional economic conditions are among the biggest challenges sited for firms in the next two years. Commercial firms are more likely than residential firms to site state and local economic conditions, while residential firms are more likely to site recruiting younger agents, competition from non-traditional market participants, and agent retention.
When firms are asked to predict the effect of generations on the industry for the next two years, the most common concern was Generation Y’s ability to buy a home due to stagnant wage growth, a slow job market, and their debt-to-income ratios—59 percent of firms cited this as a concern. This was followed by baby boomers retiring from the real estate industry, and conversely, the recruitment of Generation Y and Generation X into the real estate profession. Firms with four or more offices were most concerned with baby boomers retiring and the recruitment of Gen Y and Gen X into the industry.
This column is brought to you by the NAR Real Estate Services group.
Jessica Lautz is the director of Member and Consumer Survey Research for the National Association of REALTORS®.?
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