Why Bother? Brokerage Numbers From the New NAR Study

So NAR has published a new study of brokerage firms ($149 if you’re not a NAR member) which shows “optimism and challenges”. Various media folks have opined and reported on it already, and I read the RISMedia story on the survey. Go check it out in full if you haven’t already.

But one passage in the story caught my eye:

The typical residential real estate firm handled a median of 25 transaction sides in 2012, representing a dollar volume of $4.4 million. Ten percent of a firm’s median sales volume was generated by a website, but less than 1 percent came from social media; however, firms with three or more offices obtained 5 percent of their business through social media. The vast majority of sales were from prior relationships with clients and from referrals.

Hmm. Median real estate brokerage did 25 transaction sides, for volume of $4.4 million? Some quick math follows:

  • $4.4 million in volume X 3% commission per side = $132,000 in GCI
  • Assuming 70/30 split with the agent (keeping in mind that many producers are at far higher splits), the brokerage has $39,600 in company dollar, after paying out $92,400 to the agents.
  • 10% of the volume (and therefore, 10% of the GCI, 10% of the Company Dollar) was generated by a website = $440K in volume, $13,200 in GCI, and $3,960 in company dollar.
  • Less than 1% came from social media, but we’ll be generous and say that 1% did. So $396 in company dollar is attributable to social media.

Um, my question is, why bother? $39,600 in company dollar means all expenses have to be paid out of that — office rent, equipment, the fancy brokerage website, the marketing expenses, E&O insurance, etc. etc. Let’s be generous and say that the brokerage operates with 50% profit margin. So after it’s all said and done, the broker takes home a whopping $19,800 for his troubles.

You can make $40,000 a year driving trucks in the Houston area. Hell, you could probably make $19,800 at Starbucks serving up skinny vanilla latte’s. Why does anybody want to be a broker again?

What’s shocking is that that $4.4 million, 25 transactions figure is the median. That means HALF of the brokerages surveyed did less than that.

I ask again, why bother?

Furthermore, 10% of the business came from the website. Again, assuming the very generous 50% profit margin, that means if you as a brokerage spends more than $1,980 per year on your website, you’re losing money. Given that IDX plugins alone can be $100 per month, and even inexpensive templated WordPress sites could easily cost a couple grand to have a developer build for you… I’m just not seeing how that makes any kind of sense for the median brokerage. And it definitely doesn’t make sense for the below-median brokerage.

Finally, do we really need to point out the absurdity of obsessing over Facebook and Twitter and Pinterest and Instagram and whatever else in light of these numbers?

Honestly, I’m curious. If you’re one of these median brokers (or below median), with $4.4 million in volume in 2012 and 25 transactions, I’d like to know why you remain a broker. Is it really worth it financially? Is it the freedom? Ego boost? What is it?


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Rob Hahn

Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

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