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Real estate firms optimistic on future profitability

Real estate firms are confident in the industry’s future growth and their increasing profitability, according to a recent survey by the National Association of Realtors.

The NAR’s annual Profile of Real Estate Firms survey found that commercial firms are the most optimistic, with 75 percent expecting net income to increase next year, 22 percent anticipating it to stay the same and 3 percent foreseeing a decrease. Residential firms were slightly less optimistic, with 69 percent reporting an expectation of increased net income, 25 percent seeing no change and 6 percent predicting a drop off.

When asked to name the biggest challenge facing their firms in the next two years, 51 percent of firms named profitability. The second most common responses, at 46 percent each, were keeping up with technology and maintaining sufficient property inventory.

Firms were also asked to predict the effect of the different generations of homebuyers on the industry over the next two years. The most common concern named, at 54 percent, was the millennial generation’s inability to buy a home because of stagnant wage growth, a slow job market and their debt-to-income ratios. This was followed by baby boomer agents retiring from the real estate industry, and, conversely, the recruitment of millennials and Gen Xers into the real estate profession.

Forty-five percent of firms expect competition to increase over the next year (from mid-2015 to mid-2016) from non-traditional market participants, while 41 percent anticipate increased competition from virtual firms. Only 16 percent look for increased competition from traditional brick-and-mortar firms.

However, these concerns are not preventing firms from growing. Forty-four percent of firms are recruiting new agents, with 88 percent citing business growth as their primary reason for hiring new agents.

“A majority of firms have a positive view of the future, with 95 percent of all firms expecting their net income to either increase or stay the same in the next year,” said NAR President Chris Polychron, executive broker with 1st Choice Realty in Hot Springs, Arkansas. “The improving economy continues to fuel job growth, and while some markets are still recovering, the demand for real property is back, and prospects are looking good for the real estate industry.”

Last year, according to the survey, the average residential firm’s sales volume was $5.6 million, with commercial Realtors reporting $4.4 million in revenue. The size of a firm greatly impacted sales, with those reporting one office having a median sales volume of $4.1 million in 2014. Brokerages with four or more offices reported median sales of $250 million. Correspondingly, those with one office had 18 real estate transaction sides in 2014, while those with four or more offices had 900 real estate transaction sides.

Residential brokerages are by far the most popular specialization, with 82 percent of firms focusing on the buying and selling of homes. Residential property management followed at 7 percent, and commercial brokerage came in third at 4 percent. Eighty-three percent of firms are independent, non-franchised companies, while 15 percent of firms are independent, franchised companies. The remaining firms are subsidiaries of national or regional corporations.

The survey reports the most common benefit offered, at 81 percent of all real estate firms, was errors and omissions/liability insurance to independent contractors, licensees and agents. More than half, 55 percent, of firms either share the insurance cost or have the independent contractors, licensees or agents pay the entire cost. Twenty percent of firms offer health insurance to their independent contractors, licensees and agents, who, in a majority of cases, pay the entire cost.

The Profile of Real Estate Firms survey is based on an online questionnaire sent to nearly 139,000 real estate executives. The NAR says had a 3.3 percent return rate, with 4,555 usable responses.

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