How Are Brokerages Adapting to Changing Times?

Insights about brokerage firms based on REAL Trends research.

by Steve Murray, publisher

Albert Einstein once said that the definition of insanity was doing the same thing over and over and expecting a different result. As we review the financial and operational results of brokerage firms of all sizes, locations and brand names, we are struck by a few observations.

  • Until last year, the largest brokerage firms in the nation only matched or slightly underperformed the national market when times were good and gained share when times were not so good.
  • Without taking into account any core services earnings, the average pre-tax margin of a majority of brokerage firms was in the range of 3.5 to 6.0 percent of gross commission revenues—regardless of brand, business model or location in the country.
  • The firms that spend the least on advertising seem to be growing the fastest, not because they don’t think advertising is worthwhile, but because they think it is best left to the sales associate. In some cases, it is also because they are either the lowest cost brokerage for agents or new.
  • The firms who spend the most on employment expenses have the highest gross margin (company revenue) percentage and have the highest gross margin per agent, but they also have the lowest head counts of agents per office.

Based on this and other REAL Trends data, we’ve commented recently that all the focus on technology has taken brokerage leaders away from what appears to be the real keys to success. It would seem that recruiting and developing agents and being financially prudent in doing so are the surest ways to grow profitability. One thing we can accurately measure is just how much time leaders are spending on technology and how much they are spending on people recruitment and development. But, we can see how much is spent by those who have had the best results in both top line and bottom line growth. For these firms, the answer is less than 10 percent of their time is spent on technology and more than 60 percent of their time is spent on people.

The signs signal that for brokerage firms to become consistent at growth, it is going to take more than great websites and CRMs and far more time building systems for recruiting and developing talent at all levels. The challenge is that this takes enormous energy, and this is a huge challenge. Can you still get excited about this part of our business?

Adapting to the new challenges in the market should mean that a firm brings technology into a brokerage environment that pleases agents (hence helping recruitment and retention). Through our own consulting with clients on technology and digital marketing matters, the good news is that a growing number of firms are focusing their efforts in these areas on doing just that.

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This article originally appeared in the October 2016 issue of the REAL Trends Newsletter and is reprinted with permission of REAL Trends Inc. Copyright 2016

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