U.S. real estate firms show more profitability

Real estate firms have become more profitable during the recent real estate boom that set home sales records for three straight years, according to a new survey by the National Association of Realtors.

In the survey, "The 2004 National Association of Realtors Profile of Real Estate Firms," six out of 10 real estate firms report higher profitability in 2003. About 54 percent of realty firms expect greater profits in 2004, and another 32 percent believe profitability this year will be equal to 2003, the survey showed.

David Lereah, NAR's chief economist, said that by adopting new technologies and tailoring services to their clientele while serving the needs of agents, firms are increasing the value of their business and making the economic picture for the real estate industry bright.

"Many firms report they are supporting their staffs by offering technology investment, training and group affiliations that have translated into greater profitability," Lereah said in a June 28 news release. The survey shows that company size has little bearing on the essential services provided, he said.

Technology

Walt McDonald, NAR president, said that technology is becoming more important for both real estate professionals and consumers. In the survey, more than six out of 10 real estate firms indicated that the harnessing of technology was the most effective in aiding sales generation and enhancing profitability.

McDonald noted that the vast majority of real estate firms, 88 percent, use e-mail to communicate with clients, while 52 percent have a Web site and another 8 percent plan to have one in the future. In 2000, a separate survey showed only 56 percent of residential real estate firms used e-mail.

"Those technology trends and online resources help home buyers, sellers and real estate firms to save time and money by increasing the efficiency of the transaction process," McDonald said.

One in eight firms increased spending on technology by at least 25 percent last year, while one-third of firms plan to increase technology spending this year.

"The strong real estate market over the last few years has also led to the creation of new firms," McDonald said. "Six percent of firms have been in the business for less than a year, while nearly one in five has been in the business for three years or less."

The profile shows 84 percent of firms with a Web site generated some business leads from their site in 2003, up from 68 percent in 1999. It also shows 12 percent generated more than 25 percent of their leads from the Internet in 2003.

Demographics

The survey provides an inside look at the demographic and business characteristics of the nation's real estate brokerages. The typical firm is a single-office operation specializing in residential brokerage. More than three out of five firms have been in the business for more than11 years, and 68 percent report their main revenue is from residential brokerage.

Turnover is fairly modest and salespeople tend to stay with their firms, with 84 percent of firms reporting that no salesperson left during 2003; however, 21 percent of firms reported adding to their staff last year. Thirty-nine percent of firms provide in-house training to agents, while 21 percent reimburse salespeople for some portion of real estate sales training expenses.

The vast majority of real estate firms, 93 percent, are single-office operations. Only 2 percent have three or more offices. Single-office operations have an average of three salespeople, while firms with four or more offices have an average sales staff of 23 per office. The typical sales agent is an independent contractor; 76 percent of firms have sales forces made up entirely of independent contractors.

More than one-third of franchised real estate firms have been affiliated with their franchise for more than 10 years, and 43 percent of firms have relocation departments. Larger firms tend to engage in a wider variety of real estate specialties and often hold a business interest in related non-brokerage activities.

Non-brokerage business activities are an important part of many firms' business models, including mortgage lending and a variety of services such as escrow, settlement and moving.

Commercial brokerage was the primary activity for 8 percent of real estate firms, with 4 percent each for building and development, farm and land brokerage and appraisal.

Participants

"The 2004 National Association of Realtors Profile of Real Estate Firms" was based on a 61-question survey mailed to a national sample of 33,180 real estate firms in February, generating 2,808 usable responses, for a response rate was 8.5 percent. This included a survey mailed to each of the 500 largest firms to assure adequate representation.

The responses were weighted to be broadly consistent with information from the U.S. Census Bureau regarding the distribution of firms by size.