Real estate brokerage is a fluid and dynamic business. It must be if brokers want to survive this ever-changing industry. Various structural changes have forced adaptation, and this is readily apparent when you look at the numbers. The recent update of our Benchmark Report quantifies some of the changes we are seeing.
Last month, we looked at the industry’s Retained Company Dollar. Not surprising, our recent Benchmark Update showed a continued decline in what brokers are retaining. Thankfully, most brokers are resilient and still find ways to turn a profit. This month, we’re going to look at what the numbers are showing when it comes to the agent and office-level productivity, an important area that all brokers carefully consider.
Feeding the Benchmark Report is data from brokers all over the nation, of all shapes and sizes. To standardize and make things equally comparable, we break everything down to the office level. A couple of the data points we look at relating to agent productivity is the agents per office and the transaction sides per office. Per our recent update, the three-year running average shows the average office houses 90 agents, with these 90 agents closing an average of 717 sides ($217m in volume). This equates to just under eight transactions per agent.
Given the technology-enabled mobility of agents, it’s no surprise that office space has diminished in importance. Regardless, it’s still fascinating to see this trend play out in such rapid fashion. As recently as 2012, the average office contained just over 50 agents, and 2017 will see average offices containing 100 agents—double in only five years.
While these national numbers are interesting, they aren’t as useful for a broker who wonders how they compare to their regional peers. The fact is, a brokerage firm located in Las Vegas operates a lot differently from one in Worcester, Mass. Since we use this benchmark data to help our valuation clients, it’s much more useful to parse it out regionally. As you can see, a regional breakdown indeed shows some staggering differences in how brokers operate depending on where they’re located.
Those intimately familiar with the residential real estate industry won’t be too surprised by these disparities. But for those who aren’t, these regional differences sure are head-scratchers. If you take these numbers at face value, Southern offices appear to cram their agents in like sardines, while Northeastern offices appear to be less profitable.
If you zoom out, there are other factors that play into the greater picture. For example, while analyzing this office/agent production data, it’s useful to couple it with such performance metrics as retained company dollar. While offices in the Northeast appear to be less profitable based on volume, we need to consider that retained company dollar in this region is well over 30 percent higher than what it is in the South. Home prices are also nearly 20 percent higher on average in the Northeast.
As a percentage of gross margin, occupancy costs aren’t all that different between the Northeast and the South. What is different is Northeastern agents, and customers for that matter, expect a presence in every town. The southern offices tend to be larger by square footage, and brokers don’t feel it necessary to have a physical presence in every little town.
Northeastern agents also expect more support from their brokers, which is why salary and marketing expenses tend to be higher as a percentage of gross margin than what they are in the South. To afford this, we circle back around to retained company dollar. Northeastern agents accept lower splits, which allows their brokers to pay for these additional expenses.
This benchmark data is incredibly valuable for understanding industry trends. It’s even more valuable for brokers looking at how they’re doing compared to their regional peers. Overall, it’ll be interesting to see how brokers continue to adapt to the strategic changes that this industry continues to present to them.