FROM THE DESK OF THE CEO: Grateful for HGAR
As we enter a new era, HGAR remains steadfast in its commitment to serve and support you—through advocacy, professional development, and programs that empower your business.
WASHINGTON—Housing affordability, maintaining sufficient inventory and keeping up with technology were among the biggest challenges cited for firms in the next two years, according to the “2023 Profile of Real Estate Firms” report by the National Association of Realtors released on Oct. 4.
The report measures characteristics of firms nationwide to determine how they operate and assess what lies ahead. NAR surveyed its broker members of record to better understand firms’ demographics, composition and characteristics from the executive and manager perspective.
“With interest rates rising to more than 20-year highs, it is no surprise that the biggest current concern for real estate firms is housing affordability,” said Jessica Lautz, NAR deputy chief economist and vice president of research. “This surpassed the concern of maintaining sufficient inventory, which we saw in 2021.
Characteristics of Real Estate Firms
In 2022, the overwhelming majority of real estate firms—81%—operated from a single office and typically had three full-time real estate licensees. Roughly nine out of 10 firms —86%—were independent and non-franchised.
Nearly a third of brokers of record—31% —were CEOs, COOs, presidents or owners of a multi-office firm. Almost two-thirds—65%—were managers or owners of a single-office firm.
The typical Broker of Record was a manager or owner of a single office firm and identified as a broker owner. The typical firm was an independent, non-franchised firm with three full time real estate licensees. The typical residential firm had been operating for 16 years (same as the 2021 report), while the typical commercial firm had been operating for 25 years (down from 30 years).
Other Characteristics of Real Estate Firms data includes:
• 78% identified as broker owners and 11% as broker managers.
• 81% of real estate firms had a single office, typically with three full time real estate licensees, in line with the 2021 report.
• 86% of firms were independent non-franchised firms, and 12% were independent franchised firms.
• 80% of firms specialized in residential brokerage.
• 38% of firms were LLCs, 28% S Corps, 24% sole proprietorships, and 7% were C Corps.
• 38% of firms covered a metropolitan region market area, 26% covered a rural area or small town, and 18% covered multiple metro areas or regions.
Business Activity of Real Estate Firms
Single-office firms had a median brokerage sales volume of $5.3 million and 15 real estate transaction sides last year, up from $4.5 million and down from 19 transaction sides, respectively, in 2020. Firms with four or more offices had a median brokerage sales volume of $154.6 million and 403 transaction sides in 2022, an increase from $146.2 million and a decrease from 571 transaction sides two years ago.
The typical firm generated 48% of its sales volume from repeat business from past clients and 47% from past client referrals.
“Housing affordability has had an impact on real estate firms’ overall sales activity,” explained Lautz. “There are fewer buyers who can purchase a home due to the rise in prices and interest rates, and fewer sellers are motivated to make a move. While sales are down, sales volume has increased as home prices have augmented because of limited inventory.”
Other Business Activity Data includes:
With historically low inventory and higher mortgage rates, residential firms experienced fewer sales transactions, while a recovering economy and return to office provided more sales transactions for commercial firms. However, compared to 2020 both residential and commercial firms had higher sales dollar volumes in 2022. Firms were most likely to provide business brokerage and commercial consulting services as ancillary to their primary services.
• Firms typically received 48% of their customer inquiries from repeat business from past clients, and 49% from past client referrals.
• Many firms had the capability to offer in house ancillary services to real estate clients. The most common in-house service was business brokerage, followed by commercial consulting services, relocation services, and staging services.
• 43% of current competition came from traditional brick and mortar large franchise firms and 29% from traditional brick and mortar single office firms.
Benefits Real Estate Firms Provide to Agents and Staff
Errors and omissions/liability insurance was cited as the most common benefit—43%—which firms offered to independent contractors, licensees and agents. E-signature, comparative market analysis, electronic contracts/forms and multiple listing were the most common tools provided or encouraged by firms. A quarter (25%) of all firms offered a virtual office space for agents and staff, while 8% offered a virtual assistant.
Other Benefits Real Estate Firms Provide Data include:
• Among administrative staff, 29% received errors and omissions/liability insurance, 25% received vacation/sick days, and 10% received health insurance.
• 35% of senior management received errors and omissions/liability insurance, 16% received vacation/sick days, and 11% received health insurance.
• The most common tools provided or encouraged by firms are e-signature, comparative market analysis, multiple listing, and electronic contracts/forms.
• 4% of firms with one office operate a non-profit foundation, compared to 25% of firms with four or more offices.
• 76% of firms encourage agents to pursue certifications and designations, and 62% encourage agents to take additional training classes.
Future Outlook of Real Estate Firms
Nearly one-third of firms—30%—expect profitability or net income from all real estate activities to increase this year, down from 58% in 2021.
When asked about generational effects on the real estate industry in the next two years, the top concerns for firms were young adults’ ability to buy a home (63%), young adults’ view of homeownership (38%) and baby boomers retiring from real estate (27%).
“Due to tight inventory, the outlook among real estate firms is more conservative since the pandemic-induced housing boom,” Lautz said. “Only 30% of real estate firms believe there will be an increase in profitability from all real estate activities, compared to 58% two years ago.”
Other Future Outlook of Real Estate Firms Data include:
Two-fifths of firms are actively recruiting sales agents in 2023, mainly due to growth in their primary business, and nearly one third expect profitability to increase this year. Firms expect their 2023 competition to increase mainly from virtual firms and non-traditional market participants. As a sign of current market conditions, the biggest challenges cited by firms for the next two years were housing affordability and maintaining sufficient inventory, and nearly two thirds were concerned with young adults’ ability to purchase a home.
• 40% of firms reported they were actively recruiting sales agents in 2023.
• 38% of firms expected competition to increase in 2023 from virtual firms and 28% from non-traditional market participants.
• 64% of firms expected competition in 2023 to stay the same from traditional brick and mortar single office firms, while 62% expected competition to stay the same from larger traditional brick and mortar firms.
• 40% of all firms said they had an exit plan for when they decide to retire or exit the real estate industry.
• 12% of all firms had real estate teams with a median of three people per team.
Survey Methodology
In July 2023, NAR invited a random sample of 176,291 Realtors who were executives and senior management at real estate firms to fill out an online survey. NAR received 5,889 usable responses for an overall response rate of 3.3%. The confidence interval at a 95% level of confidence was +/-1.27% based on the share of real estate executives at real estate firms. All information in this report was representative of member characteristics, sales and lease transaction values, and other statistics from the calendar year of 2022.
Receive original business news about real estate and the REALTORS® who serve the lower Hudson Valley, delivered straight to your inbox. No credit card required.