What's behind rapid growth of big brokerages? Technology, some experts say

The nation’s biggest brokerages keep grabbing a bigger piece of the real estate pie, claiming a larger and larger share of transactions each year.

The reason?

Technology, some industry observers say.

Real estate brokerage has historically been an industry focused squarely on “human resources,” said Steve Murray, president of real estate consultancy REAL Trends, which recently released its annual rankings of the top 500 brokerages by transaction sides and sales volume.

“You recruit agents, you train them well, and try to spend less money than you have coming in,” he said.

But the potential for technology to boost the productivity of agents or attract talent has made it an increasingly important part of a firm’s value proposition. And since technology can be expensive, brokerages with deep pockets may have gained an edge over their smaller competitors in recent years.

‘Capital is starting to matter’

“What we’re now seeing is that capital is starting to matter; the capital to build or deploy CRM [customer relationship management] and transaction management and great websites and … personnel to manage leads and do online marketing,” Murray said.

The business of the U.S.’s 500 largest brokerages for each year from 2010 to 2015 grew at a much faster pace during that period than the market as a whole, according to an Inman analysis of data from Real Trends, the National Association of Realtors (NAR) and the U.S. Census Bureau.

The 500 largest brokerages closed 2.92 million transaction sides in 2015, up 54 percent from the number of transactions closed in 2010 by that year’s 500 largest brokerages.

By comparison, transaction sides closed by all brokerages in 2015 (9.67 million) were up by 37 percent from their 2010 level.

The disproportionate growth of the largest 500 brokerages has brought that group’s share of total transaction sides up to 30 percent in 2015 from 27 percent in 2010.

Firms part of the 500 club in 2015 closed 310,000 more transaction sides than they would have if their market share had remained at that group’s level of market share in 2010.

Double the rate of overall growth

In 2015, big brokerages made one of their largest land grabs yet, Murray said. The number of transactions sides closed by the 500 largest brokerages grew by 13 percent, nearly double the rate of overall growth.

Annual growth in transaction sides closed by the 500 largest brokerages has typically only outperformed the market by only a couple percentage points in recent years, Murray said.

The exceptional performance of the 500 largest brokerages in 2015 provides a “clear indication of consolidation by larger firms,” Murray said.

While human resources remain the most important element to real estate brokerage, financial resources are starting to matter more, Murray said. That’s because of what it costs to offer technology — such as customer relationship management and transaction management systems and websites — that can increase the efficiency and allure of a brokerage, he said.

‘Having a tool and using a tool are different’

“Having a tool and using a tool are different. Brokers have learned to use tools better and small to mid-sized firms don’t even have the tools,” argues Victor Lund, a partner of real estate consultancy WAV Group. “There has been a shift away from agents buying their own stuff to using the stuff of the broker.”

Brokerages often must also pay for “personnel that can train an agent how to use this stuff,” added Murray.

“Agents want to go to a place where they can get training they want — to  know they have a good technology platform.”

Tech spurring team growth, too

Technology has also spurred the growth of agent teams, noted Leslie Ebersole, who directs a brokerage accelerator program at the Swanepoel T3 Group, a real estate consultancy.

That’s partly because groups of agents in specialized roles can use technology to more quickly respond, service and stay in touch with homebuyers and sellers than most individual agents, she said.

The swell in teams may be another force that’s stretching the footprint of larger brokerages.

Why?

Smaller brokerages tend to have a “bias” against teams because teams can develop into business units distinct from a brokerage that are capable of easily transferring to another brokerage or setting up their own brokerage — defections that could deal a big blow to small brokerages, Ebersole said.

The rise of online lead-generation and new marketing channels has also made it easier to acquire clients and attract recruits simply by spending money, handing an obvious advantage to well-capitalized firms, observer say.

“The consistency of and better financial position allow the [larger brokerages] to consistently win on both the recruiting and client front lines,” said San Diego-based Realtor Andrew Gavin in the Facebook group Inman Coast to Coast.

While observers often cited technology as likely responsible for much of the growth of big brokerages in recent years, a number of other contributing factors have been posited.

They include:

• a supposed tendency among homesellers to flock to big brokerages in a seller’s market.
• the gradual drop in sales of bank-owned homes (which may have tended to be listed by smaller brokerages).
• an increase in acquisitions of small brokerages by larger competitors during the housing slump.
• heightened appreciation of well-capitalized firms by consumers in the wake of the real estate crash.

Email Teke Wiggin.