Friday, May 31st: PFAR will be closed for staff training.

Profiling Real Estate Firms: The Hard Facts

With over 100,000 real estate companies actively competing across the United States, it’s crucial to grasp the distinctive traits that define their success. These firms’ attributes and strategies exhibit diversity, influenced not only by factors like company size and office count, but also by regional variations and the impact of state and local laws and regulations. In the face of several remarkable years of transformation in the real estate industry, these firms have consistently displayed resilience. This Real Estate Firm Profile delves into the characteristics of these firms on a national scale to shed light on their operational methods and what the future holds.

Characteristics of Real Estate Firms

The typical Broker of Record was a manager or owner of a single office firm and identified as a broker-owner. The typical firm was an independent, non-franchised firm with three full-time real estate licensees. The typical residential firm had been operating for 16 years (same as the 2021 report), while the typical commercial firm had been operating for 25 years (down from 30 years).

  • 31% of Brokers of Record were CEOs, COOs, presidents, or owners, and 65% were managers or owners of a single office firm.
  • 78% identified as broker owners and 11% as broker managers.
  • 81% of real estate firms had a single office, typically with three full-time real estate licensees, in line with the 2021 report.
  • 86% of firms were independent non-franchised firms, and 12% were independent franchised firms.
  • 80% of firms specialized in residential brokerage.
  • 38% of firms were LLCs, 28% were S Corps, 24% were sole proprietorships, and 7% were C Corps.
  • The typical residential firm had been operating for 16 years (same as the 2021 report), while the typical commercial firm had been operating for 25 years (down from 30 years).
  • 38% of firms covered a metropolitan region market area, 26% covered a rural area or small town, and 18% covered multiple metro areas or regions.

Business Activity of Firms

With historically low inventory and higher mortgage rates, residential firms experienced fewer sales transactions, while a recovering economy and return to office provided more sales transactions for commercial firms. However, compared to 2020, both residential and commercial firms had higher sales dollar volumes in 2022. Firms were most likely to provide business brokerage and commercial consulting services as ancillary to their primary services.

  • Firms with only one office had a median brokerage sales volume of $5.3 million in 2022, while firms with four or more offices had a median brokerage sales volume of $154.6 million in 2022.
  • Firms with one office had a total of 15 real estate transaction sides in 2022, while firms with four or more offices typically had 403 transaction sides.
  • Firms typically received 49% of their customer inquiries from repeat business from past clients and 49% from past client referrals.
  • Firms typically generated 48% of their sales volume from repeat business from past clients and 47% from past client referrals.
  • Many firms had the capability to offer in-house ancillary services to real estate clients. The most common in-house service was business brokerage, followed by commercial consulting services, relocation services, and staging services.
  • 43% of current competition came from traditional brick-and-mortar large franchise firms and 29% from traditional brick-and-mortar single office firms.

What Firm Provides to Agents & Staff

The most commonly provided benefit to firm staff of all levels was errors and omissions/liability insurance, while the most common tools provided or encouraged by firms were e-signature, comparative market analysis, multiple listing, and electronic contracts/forms.

  • The most common benefit that firms offered to independent contractors, licensees, and agents was errors and omissions/liability insurance at 43%.
  • While this was also the most common benefit for salaried licensees and agents, only 25% received this benefit.
  • Among administrative staff, 29% received errors and omissions/liability insurance, 25% received vacation/sick days, and 10% received health insurance.
  • 35% of senior management received errors and omissions/liability insurance, 16% received vacation/sick days, and 11% received health insurance.
  • The most common tools provided or encouraged by firms are e-signature, comparative market analysis, multiple listing, and electronic contracts/forms.
  • 25% of all firms offered a virtual office for agents and staff, and eight percent offered a virtual assistant.
  • 4% of firms with one office operate a non-profit foundation, compared to 25% of firms with four or more offices.
  • 76% of firms encourage agents to pursue certifications and designations, and 62% encourage agents to take additional training classes.

Future Outlook of Firms

Two-fifths of firms are actively recruiting sales agents in 2023, mainly due to growth in their primary business, and nearly one-third expect profitability to increase this year. Firms expect their 2023 competition to increase mainly from virtual firms and non-traditional market participants. As a sign of current market conditions, the biggest challenges cited by firms for the next two years were housing affordability and maintaining sufficient inventory, and nearly two-thirds were concerned with young adults’ ability to purchase a home.

  • 40% of firms reported they were actively recruiting sales agents in 2023.
  • 30% of firms expected profitability (net income) from all real estate activities to increase this year (down from 58% in the 2021 report).
  • 38% of firms expected competition to increase in 2023 from virtual firms and 28% from non-traditional market participants.
  • 64% of firms expected competition in 2023 to stay the same from traditional brick-and-mortar single office firms, while 62% expected competition to stay the same from larger traditional brick-and-mortar firms.
  • Housing affordability, maintaining sufficient inventory, and keeping up with technology were among the biggest challenges cited for firms in the next two years.
  • 63% of firms were concerned with young adults’ ability to buy a home, 38% with young adults’ view of homeownership, and 27% with baby boomers retiring from real estate.
  • 40% of all firms said they had an exit plan for when they decide to retire or exit the real estate industry.
  • 12% of all firms had real estate teams with a median of three people per team.