Brokerages Have A Bright Future

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FIRST PERSON / BENCHMARKING THE REAL TRENDS 500

Over one-half of the brokerage firms we ranked on the REAL Trends 500, and Nation’s Best (formerly Up-and-Comers) list grew their transaction sides from 2014-2018. Of the nearly 903 brokerage firms from which we have these five years of data, 617 of them grew in those five years.

What’s also interesting is that 325 of these firms grew their transaction sides by 30% or more; 219 rose by more than 50% over those five years; 85 firms increased by more than 100%, essentially doubling their business and 25 brokerage firms grew by more than 200% in that same period.

Largest Share Grew Without an Acquisition

Examining the 219 firms that grew by more than 50% and given our general knowledge of merger and acquisition activity, we can state that the largest share, perhaps 80% of these fast-growing firms, grew without an acquisition. When we look at the 25 firms that grew more than 200%, we can assert that all but a handful grew without an acquisition.

Total new and existing home sales transaction sides grew 10.9% during the same period. A majority of all 903 brokerage firms on the REAL Trends 500 and Nation’s Best, therefore, built their business faster than the overall market.

National Brand Name Not Most Important Factor in Recruiting and Production

Further, most of these fast-growth firms were well-known, existing, brand-name companies affiliated with national firms such as Better Homes and Gardens, Century 21, Coldwell Banker, ERA, Keller Williams, RE/MAX and Sotheby’s. Each of these recognized brand-named firms were represented in the fastest-growing brokerage firms in the country. Independent brokerage firms were also represented on these rankings of growing brokerage firms.

Also, each of these different kinds of brokerage firms was represented in the nearly 300 firms that did not grow. We can also infer that while having a national brand name helps recruit, retain, and produce, it is not the most critical factor.

Keller Williams had the most firms ranked highly in this growth examination. Surely, part of this is KW’s focus on recruiting and training as a means of its growth (as opposed to acquisitions, for instance). The study showed that while some brokerage firms grew their transactions through increased productivity per agent, most of the growth was through recruiting.

At this year’s Gathering of Eagles in Denver, postponed until November 9-11, 2020 due to COVID-19, we’re going to recognize the leading growth firms from each of 11 different brands or independent firms.

Based on our discussions and interviews with the 11 firms who will be recognized, we know that the owners and leadership team have a distinct focus on just a few things:

  • Recruiting is not just another thing they do; it’s at the top of the list of things that leadership focuses on and invests most of their time and effort.
  • It’s a team effort, not just the owner or leader of the firm, but rather the leadership team and, to some extent, their agents are involved.
  • Each leading firm has its own story to tell, but many focus on the culture and not the financial aspects of the relationships they’re offering to prospective agents.

Bright Futures

We think brokerage has a bright future, therefore, because:

  • Families still want to be homeowners.
  • Housing consumers are using agents at the highest rate in the last 20 years.
  • Leading agents still want to be with a brokerage that has a well-known local or national brand name.
  • There are between 70,000 to 100,000 gross new Realtors® each year, with the net number between 30,000 to 50,000, after subtracting for those who depart the industry.

While there are a growing number of low-cost, unbundled brokerage offerings, the reasons for why agents join a brokerage firm is not always based on the financial arrangements such as split or caps or fees. If it were always and only about the financial relationship, virtually all incumbents would have been out of business years ago. There have always been low-cost brokerage firms in the market.

Brokerage firms have been adapting to the challenges in today’s market for the past 40 years. The decline in Gross Margins didn’t start a few years ago; it began 40 years ago when the prohibition against recruiting another brokerage firm’s agents was outlawed. The challenge to Net Margins didn’t start yesterday either; it’s been an ongoing challenge for the same 40 years.

We, therefore, remain bullish on brokerage. View the REAL Trends 500 online

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This article originally appeared in the April 2020 issue of the REAL Trends Newsletter. It is reprinted with permission of REAL Trends, Inc. Copyright © 2020. To read the rest of this issue & more, please visit our Real Trends page online.

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