Real Estate Firms Optimistic about Future of Industry
Real estate firms are confident about the future growth and profitability of their industry, according to the 2014 National Association of REALTORS® Profile of Real Estate Firms.
“The real estate industry is competitive, and REALTORS® know that to be successful, they must have a strong entrepreneurial spirit and the know-how to make a business thrive, even in a difficult market,” says NAR President Steve Brown. “Despite continued challenges, real estate firms expect market growth in tandem with the ongoing recovery.”
Most residential firms have a positive view of the future, with 66 percent of firms expecting to see profit from all their activities to increase in the next year. Lawrence Yun, NAR’s chief economist, says that commercial firms also have a confident outlook for the coming year. “Commercial real estate firms are even more optimistic, with 71 percent expecting profitability to improve,” says Yun.
According to the survey, 81 percent of firms specialize in residential brokerage, with commercial brokerages and residential property management as the most popular secondary functions. Eighty-four percent of firms are independent, non-franchised firms, while 14 percent are independent, franchised firms. The remainder are subsidiaries of a national or regional corporation.
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. Firms reported that 35 percent of their sales volume typically comes from past client referrals, 30 percent from repeat business from past clients, 10 percent from their website and 5 percent through social media.
The average residential firm has been in business for 12 years, and the average commercial firm has been operating for 17 years. Eighty-one percent of all brokerages have one office and two full-time real estate licensees, while 7 percent have four or more offices with 92 full-time real estate licensees.
The most common concern cited by firms (59 percent) was millennials’ ability to buy a home due to stagnant wage growth, a slow job market and their debt-to-income ratios. Profitability, keeping up with technology, maintaining sufficient inventory, and local or regional economic conditions are the next most reported concerns firms see themselves facing in the next two years.
Despite those concerns, firm growth has not slowed. Forty-five percent of firms reported they are currently recruiting sales agents, with 87 percent of those firms reporting business growth as their primary reason for recruiting.
Firms also expect industry competition to increase in the next year. Forty-eight percent predict this will come from non-traditional market participants, 41 percent predict it will come from virtual firms, and 16 percent expect competition from traditional brick-and-mortar firms.
Eighty-one percent of firms offer errors and omissions/liability insurance to independent contractors, licensees and agents, making it the most common benefit firms offer their employees. However, many firms share the cost of the insurance with their employees. Twenty-one percent of firms offer their independent contractors, licensees and agents health insurance, and in most cases, the employee pays for the benefit.
The 2014 National Association of REALTORS® Profile of Real Estate Firms was based on a questionnaire mailed in August of this year to a national sample of 134,108 executives at real estate firms. This generated 7,081 usable responses with a response rate of 5.8 percent.
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