Biggest Challenges for Brokerages

August 22, 2017

On Tuesday, the National Association of REALTORS®’ “2017 Profile of Real Estate Firms” was released, highlighting the most challenging aspects for brokerages this year. These include keeping up with technology, maintaining sufficient inventory, and competing with nontraditional participants.

The majority of the firms surveyed have an optimistic outlook for the real estate industry overall, but they do foresee several headwinds ahead that could limit their growth.

Ninety percent of real estate firms expect net income to increase or remain the same over the next year, according to NAR’s survey, which is based on a survey of more than 6,000 firm executives who are NAR members.

However, “for the second year in a row, low inventory and high prices have led to a slight decrease in real estate firms’ sales volume,” says NAR President William E. Brown.

Fifty-percent of real estate firms expect competition to increase over the next year from nontraditional market participants, which is up from 43 percent in 2016. Half of the surveyed firms expect competition to increase from virtual firms. Only 15 percent of respondents expect competition to increase from traditional brick-and-mortar firms, the survey shows.

“There is no doubt that the real estate industry is rapidly changing, and with it comes growing competition,” says NAR CEO Bob Goldberg. “To stay ahead of this evolution and succeed in a more competitive market, NAR is establishing a new Strategic Business and Technology group to focus on business and technology solutions that ensure the role of the REALTOR® is essential to the consumer.”

A Closer Look at Profitability

Residential and commercial firms are optimistic about profitability over the next year.

Sixty-two percent of residential real estate firms surveyed expect profitability to improve. Also, 60 percent of commercial firms expect profitability from all real estate activities to increase over the next year.

The average residential real estate firm’s brokerage sales volume totaled $6.2 million in 2016, which is down from $6.3 million in 2015. The typical commercial real estate firm’s brokerage sales volume netted $4 million in 2016, down from $4.5 million in 2015.

Not surprisingly, the size of the firm has an impact on sales volume. Firms with only one office—typically with two full-time licensed agents—had a median brokerage sales volume of $4.3 million in 2016. On the other hand, larger firms—those with four or more offices with usually 81 full-time licensed agents—had a median brokerage sales volume of $235 million in 2016.

Source: National Association of REALTORS®