The National Association of Realtors has completed a survey of real estate firms designed to put to rest suspicions by the Federal Trade Commission and the Department of Justice that brokers are working to keep a traditional status quo and keeping new entrants out of the industry.

In the 2006 National Association of Realtors Profile of Real Estate Firms: An Industry Overview, the survey shows that real estate firms "vary widely in size and specialize in a variety of business activities, fueling competition that benefit consumers."

Small and large firms can compete side-by-side, spurred by the growth in technology," said David Lereah, NAR's chief economist.

More than three-fourths of real estate firms offer one or more ancillary services, not only suggesting that real estate is a business of specialties, but also that the core business of helping people buy homes isn't profitable enough in an age of diminishing commissions. According to an internal NAR report conducted in 2001, commissions are between 4.3 and 5.4 percent nationwide, a far cry from the 6 percent often reported as "standard" by the popular press.

Four out of five real estate firms have a website that's been online for a median of five years, also dispelling the notion that Realtors are behind the times in terms of technology and utilizing the Internet to benefit consumers. If anything, the Internet has added an additional burden to the marketing costs brokers have to get homes sold or leased, Realogy CEO Richard Smith told Realty Times.

More than half of real estate firms have been in business for 15 years or more, and 80 percent of firms operate out of only one office with a median of five licensees, composed of a broker of record, broker associates and salespeople. Only 10 percent of firms have three or more offices, which may result in dominance in certain markets, but dominant brokers are not yet a national trend.

Services

Eighty-one percent of real estate firms offer residential brokerage and 36 percent provide commercial real estate services. Secondary services offered by firms include property management, 41 percent; land and development, 22 percent; residential brokerage (for firms with other primary activities), 22 percent; relocation, 20 percent; appraisal, 13 percent; counseling, 10 percent; auction, 4 percent; and international, 3 percent.

Many related business activities or services are offered in-house by real estate firms, or offered through outsourcing or a business relationship with another firm. Among in-house offerings, 36 percent of firms offer business brokerage (the buying and selling of businesses such as retail stores), 24 percent relocation services, 12 percent mortgage lending, 8 percent home warranty, 5 percent title or escrow services and 5 percent home improvement. Smaller categories include settlement services, homeowners insurance, other insurance, home inspection, moving services and securities brokerage.

With the exception of business brokerage and relocation services, the typical firm offers all of the other services at higher levels through outsourcing or business relationships.

More than six in 10 firms increased technology spending in 2005, and 41 percent planned on additional technology spending in 2006 while another 56 percent anticipated they would maintain the same level of spending. This suggests that contrary to the belief of the FTC, DOJ and some others, real estate firms are not running scared of competitors that utilize technology and the Internet because they are doing it, too.

In fact, despite increasing competition from new entrants into the industry and regulatory and legal interference from the federal government, two-thirds of real estate firms report higher profits in 2005, including 66 percent of residential brokerages and 72 percent of commercial firms. They're learning to work smarter.

Says Tom Stevens, president of the NAR, "It's fairly well known that there are numerous real estate brokerage options in today's market, ranging from full-service to discount brokerage in addition to flat fees, fee-for-service and even hourly rates."

Published: October 24, 2006

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