Profits & Recruiting: Data Tells A Story

 


FIRST PERSON

Without an improvement in per-person productivity among traditional realty firms, their long-term growth prospects are limited.

REAL Trends team members Scott Wright and Alicia Vivian manage the valuation, merger and acquisition efforts for our company and are deeply involved in developing benchmark tools for our clients based on the significant data that we collect. We get data not only from our valuation work but also from the REAL Trends 500, our agent rankings in The Thousand and America’s Best Real Estate Agents and other company assessment work.

They presented a snapshot of some of that information at the recent Gathering of Eagles conference. Three pieces of their analysis caught my attention (and that of most of the audience).

No. 1: Average Gross Margin

The average gross margin across all brands and regions over the last five years has fallen from around 22 percent to approximately 15 percent—a decline of about 32 percent.

No. 2: Average Net Profit Margin

The average net profit margin has fallen far less, from 4.5 percent to around 3.9 percent, or a decline of approximately 13 percent.

Brokerage owners are doing what they’ve been doing for the last 40 years. They’re adapting to the changing market for their services, the costs of agents’ splits, the growth of teams and increasing demand for technology. They may have lost a large bit of turf in commission costs, but they’re getting more efficient at delivering service to their agents. The market is working, well, like markets usually do.

As REAL Trends also divulged, when we look strictly at traditional brokerage firms with graduated commission plans, their average gross margin remains above 20 percent while those brokerages with capped or flat-fee plans are around 13 to 14 percent. So, the national average doesn’t tell the whole story.

No. 3: Average Size of Office

The third piece of information they shared was about the average size of an office among REAL Trends 500 firms. It turns out the average has gone from about 44 agents per office five years ago to nearly 60 agents per office in 2017. That would represent a growth of 36 percent—not bad given how competitive it is. However, when we take all Keller Williams firms out of the equation, that growth is from 44 agents per office to about 46 agents per office over five years. That is the growth rate of 0.5 percent over five years.

This does not bode well for the non-KW firms among the REAL Trends 500. Given that transaction growth in the country has been materially higher than that over the past five years, and average prices even higher, the lack of recruiting doesn’t hit home as hard as it would otherwise. However, without an improvement in per-person productivity among traditional realty firms, their long-term growth prospects are limited.

This article originally appeared in the July 2018 issue of the REAL Trends Newsletter is reprinted with permission of REAL Trends, Inc. Copyright 2018.

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