Most real estate firms optimistic about the future
WASHINGTON – Sept. 20, 2016 – The vast majority of real estate firms have an optimistic outlook for the industry’s profitability and growth, according to the National Association of Realtors® (NAR) 2016 Profile of Real Estate Firms. Profitability expectations declined since the 2015 survey, mainly due to inventory shortages and home-price growth, but real estate firms remain confident about their overall future profitability.
The report is based on a survey of firm executives who are NAR members. It provides insight into the business characteristics and activity of firms, the benefits and education provided to agents, and their outlook for the future.
“For a second year in a row, a majority of real estate firms have a positive outlook on profitability, with 91 percent of all firms expecting their net income to increase or remain the same over the next year,” says NAR President Tom Salomone, broker-owner of Real Estate II, Inc. in Coral Springs, Florida. “Although there is an overwhelmingly positive outlook, low inventory and high prices have led to an overall decrease in real estate firms’ sales volume since last year’s report. High home prices are holding back first-time buyers and low inventory means fewer sales at a time of increased Realtor membership.”
In 2016, 64 percent of firms expect profitability (net income) from all real estate activities to increase in the next year, down from 68 percent in 2015. Sixty-seven percent of commercial real estate firms expect profitability to improve (down from 75 percent in 2015); and 70 percent of large firms with four or more offices expect profitability to improve (down from 79 percent). Residential firms are a little less optimistic: 65 percent expect to see an increase in their net income.
According to the report, the typical residential real estate firm’s brokerage sales volume was $6.3 million, while the typical commercial real estate firm’s brokerage sales volume was $4.5 million. The size of the firm has a large impact on its sales volume; firms with one office had median brokerage sales of $4.5 million in 2015, while those with four or more offices had median brokerage sales of $203.8 million in 2015.
Forty-three percent of real estate firms expect competition to increase in the next year from non-traditional firms, down from 45 percent in 2015. Forty-six percent see competition from virtual firms increasing (up from 41 percent in 2015), while only 17 percent expect competition increasing from traditional brick-and-mortar firms.
The sense of competition has fueled more recruitment since the 2015 survey. Forty-seven percent of firms reported they’re actively recruiting sales agents in 2016, up from 44 percent in 2015. Active recruitment is more common with residential firms (51 percent) than commercial firms (32 percent) and more common among firms with four offices or more (88 percent) than firms with one office (39 percent).
Real estate firms are also seeing a growth in agents: 78 percent have a single office, and these typically include three full-time real estate licensees, up from two in 2015. The growth mirrors the growth in membership data found in NAR’s 2016 Member Profile, which found that 20 percent of members had one year or less experience, rising from 11 percent in 2015.
The study found that 30 percent of customer inquiries came from past client referrals, 30 percent from repeat business from past clients, 10 percent from websites, 7 percent from social media and 2 percent from open houses.
When asked about the biggest challenges over the next two years, firms cited profitability (49 percent), keeping up with technology (48 percent), maintaining sufficient inventory (48 percent) and recruiting younger agents (36 percent).
According to the study, 48 percent of firms are concerned with Generation Y’s ability to buy a home due to stagnant growth, the job market and their debt to income ratios. Forty-six percent of firms are concerned about the recruitment of Gen Y and Gen X real estate professionals.
The study also asked about professional volunteer work and supporting the local community. Eighty-two percent of firms encourage their agents to volunteer in the local community, 48 percent at the local association of Realtors, 28 percent at the state association of Realtors and 19 percent with NAR. According to the study, residential firms are more likely than commercial firms to encourage agents to volunteer.
The NAR 2016 Profile of Real Estate Firms was based on an online survey sent in July 2016 to a national sample of 147,835 executives at real estate firms. This generated 4,567 useable responses with a response rate of 3.1 percent.