The biggest source of pressure on real estate broker profits comes from competition from discount firms, according to a recent Inman News poll.
Fifty percent of those responding said that was the top source of pressure on profits. That was followed by top-producer commission splits, which about 28 percent said was the biggest pressure. About 3 percent cited technology/Web expenses, with another 3 percent citing franchise fees.
Fifteen percent opted for the “other” category, with some of the responses including “non-professional activity by incompetent agents,” fixed cost overheads such as office space, insurance and staffing and competition from non-discount firms that cut their commissions by as much as half.
“When agents keep getting better and better commission splits (e.g. Keller Williams), traditional two-tiered brokerage models (the salesperson tier and the broker tier) have a hard time keeping agents… The two-tier broker/salesperson system will break under the weight of competition over the next 15 years,” wrote Mike Davin of CataList Homes.
Statistics show that brokers are generally not going broke. In fact, their profits are up, their numbers are growing and some of the largest brokerages are doing exceptionally well. The “2004 Profile of Real Estate Firms,” a National Association of Realtors study, found that about 60 percent of all residential real estate firms had increased profitability in 2003 compared with 2002, and 53 percent of all residential firms expected profitability to increase this year.
Still, brokers say there’s no denying profits are being squeezed from a business that never was very profitable. They worry about technology costs, as well as agent commission splits, increasing liability costs and lower commissions throughout the industry.
Most brokers are concerned about declining profit margins, though some worry about them more than others. Some have accepted them as inevitable changes in the industry, and adapt to them by trying to find new sources of revenue, such as providing ancillary services.
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