The Profitability of Brokerage Firms
Are there problems with broker profitability?
By Steve Murray, President
In other recent news, there continues to be comments about some profit problems among residential brokerage firms. We disagree. In fact, we may be repeating ourselves in this statement.
We’ve been tracking broker profitability for over 20 years. The best realty firms, regardless of brand, business model or location, have margins of 4 to 6 percent pre-tax on gross revenues or 23 to 27 percent pre-tax margins on their Gross Margin/Company Revenues. This does not include profit from mortgage services or other core businesses.
This is the same margin that leading brokerage firms have had for almost the entire 20 years we’ve been doing valuations on these firms. Of course, this wasn’t the case during the downturn. But, in the healthy markets of 2014 to 2017, as well as 1997 to 2005, it was certainly true.
There are outliers both above and below this range. It’s true that it’s harder to keep those margins today than it was 20 years ago. Leading brokerage firms of all kinds adapt to new conditions, as they always have.