Looking to 2022, brokerage leaders are preparing for a slower market. Some 47.3% of brokers surveyed in our Q4 2021 BrokerPulse predicted the market would be flat during the first three months of 2022, another 25.9% said the market would be down 5% or less.
Despite their predictions, some 70% are optimistic about the residential brokerage business into the first quarter of 2022. That’s down from 76% in the Q3 BrokerPulse.
“The froth has gone out of the market. It’s still a very strong market by any standard. However, [earlier this year] you would have a listing with 100 showings and 20 offers,” says Tim Rush, chief people connector of Berkshire Hathaway HomeServices California Properties in Orange County. “Now, you have 40 showings and maybe five offers. So, it’s not nearly as robust as it was, but it’s still a fabulous market. As interest rates go up, every 1/8 of a percent will have an impact on people’s ability to buy.”
When it comes to trends, remote work is impacting cities just outside of major metros. John Kilroy is a broker with ERA Liberty Realty in Charlestown and Martinsburg, West Virginia. “We’re 70 miles outside of Washington, D.C. With COVID, a lot of people started working from home and are now doing it permanently,” he says. “Many are moving further out. Leesburg, Virginia is a high-priced area, and remote workers are realizing they can cross over into West Virginia and get considerably more house for their money.” Kilroy notes that inventory is starting to tick up and multiple offers starting to slow down, but demand is still high.
RealTrends BrokerPulse requests surveys from some 6,000+ real estate brokerage leaders around the nation on market trends and brokerage opportunities and challenges. Of the 120 completed surveys, 31% were from the Southeast, 21% from the Southwest, 21% from the Midwest, 18% form the Northeast and 8% from the Northwest.
Continued challenges: Agent productivity and new business models
Brokers continued to mention increasing per-agent productivity and pressure on net and gross margins as their top two challenges in the next three months. Close behind is competing with new business models and difficulty in recruiting. These have been the top four challenges this entire year.
In 2015, according to RealTrends data, average gross margins were at 16.4% for the largest brokerage companies in the United States. Today, the average across all brands and models is 13.5% for 2020, down from 13.8% only one year ago. Of course, certain business models have higher margins.
According to Sherry Chris, president and CEO of Realogy Expansion Brands, “As a result of pressure on commissions, company dollar is continuing to shrink. In fact, we look at where it was five years ago at around 16% across the country. Some brokers who listen to this will say, “Well, I have much more than that,” and I’m like, “Good for you. That’s awesome.” And many of you do, but now it’s in the 13% range and will probably have a 12 in front of it within the next year, maybe even next year.”
What does that mean for brokers? “It’s really difficult to succeed today being a generalist. You have to be a specialist. So, do you specialize in luxury? Are you a transaction fee brokerage? Do you specialize in bringing millennials in? From a business perspective, do you have ancillary services that are able to sit right beside your brokerage and bring in additional revenue? I think that’s very important in the future,” says Chris. “If we look at the brokerage company that has a very low company dollar, they’re not affiliated with some sort of a partnership or brand that can help with technology, and they have no ancillary services. These are the brokers that are at highest risk in the near and long term.”
To increase per-agent productivity, brokers mentioned assisting agents with business planning and business adjustments, creating a smaller, more intimate and connected brokerage and team and working with and developing a select group of higher producing agents. “We must invest in sophisticated, turnkey brokerage-provided solutions as their [top agents] production grows,” according to Managing Broker Kim Piper with RE/MAX Advantage in Olympia, Washington.
Opportunities for growth and profits in 2022
When it comes to the industry, Q42021 BrokerPulse found that brokers see a lot of opportunity for their businesses in the first quarter of 2022. The one most mentioned is acquiring non-profitable companies. “The consolidation of offices will lead to merger and acquisition opportunities,” says a RE/MAX broker-owner in Massachusetts. A Coldwell Banker broker in Maine agrees, “As interest rates rise and the market tightens, we’ll see some of the smaller offices disappear.”
Other opportunities include boosting capture rates on core services and implementing core services. An opportunity is to “add core services and streamline the home buying and selling process to be more transparent so that deals don’t fall apart at the last minute, ” says Diane Hasley, CEO of Capstone Realty in Huntsville, Alabama.
Included in that is offering financing options to consumers, such as bridge loans and iBuyer services. “increasing the skill and expertise of the individual agent to effectively drive real value to the consumer” is a priority for Florida vice president of operations for an independent real estate brokerage.
Brokers also mentioned attracting teams, offering more value to teams and increasing the adoption rate of technology tools.
The biggest opportunity; however, is focusing on the consumer. “We need to make sure the public knows that we have access to all the buyers and tools for sellers. They don’t need to do it alone,” says Phyllis Brookshire, president of Allen Tate Real Estate in North Carolina.
Who’s gaining on market share?
Surveyed brokers continue to look at low-fee, virtual and discount brokers as challenges. It’s important to note that, according to Mike DelPrete, a real estate tech strategist and scholar-in-residence at the University of Colorado Boulder, ” In Q3 2021, iBuyers had about 1.7% market share based on total number of home purchases.” Although, he notes that number may be slightly higher now.
Not only that, but “when looking at the RealTrends 500 top brokerage firms,” says Steve Murray, senior advisor to RealTrends, “they did about 38% of all brokerage-controlled sales in the country with 36.5% of all Realtors. This means that the Realtors at RT 500 brokerage were only slightly more productive than all other Realtors in the country.”
Both groups are gaining market share, but that leaves a little more than 60% of the market for everyone else. Just remember, competition drives real estate brokerage leaders to adapt and improve their businesses. The keys are culture and relationships.
If you have questions about BrokerPulse, email RealTrends Editorial Director Tracey Velt at firstname.lastname@example.org. Also, be sure to sign up for my bi-weekly broker newsletter, called BrokerSource.