Real estate brokerages anticipate big challenges to come from evolving technology and “nontraditional market participants,” according to a new NAR survey.
Most real estate brokerages expect to increase their profitability in the next year, but anticipate their biggest challenges to come from evolving technology, housing affordability and “nontraditional market participants” such as Zillow and artificial intelligence bots, according to an annual survey from the National Association of Realtors.
NAR’s 2019 Profile of Real Estate Firms contains statistics created from the responses of 6,107 brokers of record among the trade group’s members regarding calendar year 2018. Brokers of record are responsible for supervising at least one real estate agent and make up 11.9 percent of NAR’s overall membership, which stands at 1.32 million members.
“It is clear that the real estate industry is rapidly changing, and with that comes growing competition in the market,” said NAR CEO Bob Goldberg in a press release.
“NAR continues to stay ahead of the evolving trends in technology as we work with market disruptors to best serve our members and ensure they have the resources needed to be successful.”
Among all surveyed firms, 81 percent had a single office with a median of two full-time real estate licensees — down from three licensees two years ago — and 82 percent specialized in residential brokerage.
The typical residential firm had been operating for 14 years, the report said. Among all firms, 57 percent covered a metro area while 31 percent covered a rural area or small town. Only 1 percent operated nationwide, according to the report.
The vast majority of brokerages, 86 percent, were independent, non-franchised firms while 11 percent were independent and franchised. Only 13 percent had real estate teams, with a median of three people per team.
A residential brokerage’s sales volume and transaction sides varied widely depending on how many offices the company had. Overall, residential brokerages had a median sales volume of $5.3 million and a median 26 transaction sides in 2018.
But for those with only one office, the medians were $4.2 million in sales volume and 18 transaction sides last year. At the same time, for a firm with four or more offices, the medians were $100 million in sales volume and 478 real estate transaction sides.
Nearly six in 10 (57 percent) of all firms expected their net income to rise in the next year while 63 percent of those with four or more offices expected to increase their profitability, according to the report.
Most real estate brokerages don’t offer ancillary services, but among firms with four or more offices, 47 percent offered relocation services, 38 percent business brokerage, 19 percent title or escrow services in house, and 17 percent offered mortgage lending, the report said.
Firms typically made less than 1 percent of their net revenue from ancillary services but that figure rises to between 5 and 10 percent for firms with four or more offices.
Regarding where business came from, brokerages reported that 30 percent of their customer inquiries and 30 percent of their sales volume came from past client referrals, while 25 percent of their inquiries and 30 percent of their sales volume came from repeat business from past clients.
Ten percent of leads and sales volume came from the broker’s website, while another 10 percent of each came through social media. Two percent of leads and sales volume came from a third-party referral company, according to the report.
Brokerages reported that half their current competition comes from traditional brick and mortar large franchise firms, while another quarter comes from single-office brick and mortar firms. Virtual firms, nontraditional market participants and for-sale-by-owners (FSBOs) were deemed to be 5 percent of the competition each. The survey defined nontraditional market participants as “online sources like Zillow or artificial intelligence bots.”
Nonetheless, the vast majority of respondents anticipated that competition from traditional brick and mortar firms would stay the same in 2019, while 44 percent of brokerages expected competition to increase in the next year from virtual firms and 43 percent from nontraditional market participants, the report said.
Among respondents, 21 percent offered a virtual office and 6 percent offered a virtual assistant to agents and staff while 61 percent offered physical office space, according to the report.
Residential brokerages cited “competition from nontraditional market participants,” “keeping up with technology,” “housing affordability,” and “maintaining sufficient inventory” as the top four biggest challenges facing their firm in the next two years.
When asked which specific software their firms provided or encouraged the use of, brokers named comparative market analyses (CMAs), multiple listing services (MLSs), e-signatures, and electronic contracts and forms.
The most common features on a firm’s website were property listings, agent and staff profiles, customer reviews and testimonials, information about the home buying and selling process, mortgage and financial calculators, community information and demographics and links to social media accounts, the report said.
While wire fraud sometimes makes headlines in the industry, less than a fifth of firms were worried about it. Only 10 percent of firms overall had experience with wire fraud at closing, though that increases to 39 percent for firms with four or more offices, the report said. A quarter of brokerages offer their staff encrypted emails to prevent fraud.
The survey asked brokers to predict the effect of generations on the real estate industry for the next two years and 58 percent were concerned about millennials’ ability to buy a home while 46 percent worried about millennials’ view of homeownership, according to the report.
About a quarter, 26 percent, worried about baby boomers retiring as real estate professionals. Only 38 percent of residential brokers said they had an exit plan for when they retire or choose to leave the industry. Another 38 percent said they did not plan to retire or leave the industry.
Almost half of residential brokerages (47 percent) said they were actively recruiting sales agents last year. That number jumps to 84 percent among firms with four or more offices and drops to 36 percent among firms with one office.
The vast majority of brokerages (86 percent) said they were recruiting because of growth in their primary business while 31 percent said the reason was a desire to expand into new market areas, the report said.
At 40 percent, the most common benefit brokers offered to independent contractors, licensees and agents was errors and omissions liability insurance, though often employees also chipped in to pay for it. Only 2 percent of firms paid for their independent contractors to have health insurance and in most cases when it was offered the agent paid for the benefit, according to the report.
But salaried agents didn’t fair much better: only 4 percent of firms paid for their health insurance.
Only 4 percent of all brokerages operated a nonprofit foundation, though 19 percent of firms with four or more offices did, according to the report.
The vast majority of brokerages, 79 percent, encouraged their agents to volunteer in the local community while 40 percent encouraged them to volunteer at the local association of Realtors, 23 percent encouraged volunteering at the state association of Realtors and 16 percent encouraged volunteering at NAR, the report said.