Industry competition benefits consumers

“The diversity of real estate firms and business models allows both large and small firms to compete side-by-side, spurred by the growth in technology,” said NAHB Chief Economist David Lereah, in a news release.

Evolving business models

According to the overview, 84 percent of real estate firms offer secondary business activities, and an increasing number of firms offer related business activities and services.

Among in-house offerings, 36 percent of firms offer business brokerage services (the buying and selling of businesses such as retail stores), 24 percent relocation services, 12 percent mortgage lending, 8 percent home warranty, 5 percent title or escrow services and 5 percent home improvement.

Smaller categories include settlement services, homeowners insurance, other insurance, home inspection, moving services and securities brokerage.

With the exception of business brokerage and relocation services, the typical firm offers all of the other services at higher levels through outsourcing or business relationships.

“Different business models help to match consumer needs to services, and technology has streamlined many operational activities, allowing for more efficient communication with clients – but it’s no substitute for personal contact,” Lereah said. “Most buyers and sellers rely on the expertise of real estate professionals to help them with all aspects of the transaction process, from shopping or listing to negotiation and closing.”

Online presence

Nearly 80 percent of real estate firms have Web sites that have been online for a median of five years.

While the vast majority of firm Web sites feature real estate listings, three out of five include mortgage or financial calculators, and more than half have community information.

More than 50 percent of real estate firms have been in business for 15 years or more, and 80 percent of firms operate out of only one office with a median of five licensees. Only 10 percent of firms have three or more offices.

Natural outgrowth

NAR President Thomas M. Stevens said the diversity of real estate firms is a natural outgrowth of the entrepreneurial spirit of real estate professionals.

“There is a definite creativity and striving for success that breeds the wide variety of business models and services we see today,” Stevens said.

“Ultimately, it’s consumers who determine which of those succeed and the popularity of various services that are offered by real estate firms.”

Secondary services offered by firms include; property management, 41 percent; land and development, 22 percent; residential brokerage (for firms with other primary activities), 22 percent; relocation, 20 percent; appraisal, 13 percent; counseling, 10 percent; auction, 4 percent; and international, 3 percent.

Given the localized nature of many real estate services, three out of five

firms specialize in a particular geographic area. That ranges from 65 percent of residential firms to 38 percent of commercial firms.

Other findings:

• 60 percent of firms reported increased technology spending in 2005, while another 56 percent anticipated that they would maintain the same level of spending;

• 41 percent planned on additional technology spending in 2006 while another 56 percent anticipated they would maintain the same level of spending;

• 70 percent of all firms provide training for both staff members and sales agents, and 80 percent said their training programs contributed to their ability to acquire listings;

• More than 66 percent of firms reported higher profits in 2005, including 66 percent of residential brokerages and 72 percent of commercial firms;

• The typical firm has a median of six licensees and one staff person. Among all firms, 73 percent report that all of their full-time licensees are independent contractors, along with 80 percent of part-time licensees;

• Only 27 percent of firms offer health insurance to their independent contractors, although the licensee typically pays the full cost.

Nearly 80 percent of firms provide errors and omissions insurance for independent contractors; and

• 23 percent of all firms are affiliated with a franchise, which has remained relatively constant since 1999. However, franchise firms are larger and account for 55 percent of the total sales force. The typical franchised firm has had their affiliation for 11 years.

The report was based on a 74-question survey mailed to a national sample of 39,000 real estate firms, with a response rate of 6.1 percent, with an overall margin of error of plus or minus 2 percent.