One of the most valuable pieces of data in our industry, I think, is the annual Power Broker Report and Survey conducted by RISMedia. The 2008 edition is no exception, and is available here. I highly recommend it if you’re interested in our industry as a whole.
I like to play with the numbers as soon as I can get my hands on them. I’ll probably be writing about one or more aspects of this over the next few weeks, but thought I would share some interesting tidbits.
I only looked at the top 750 brokerage companies in the survey report because the numbers started getting wacky. For example, the #961 company did 13 transactions totalling $70,000 in volume in 2008. That just doesn’t sound right — either there’s a data entry error, or that company ain’t in business no mo’.
Plus, I excluded the top three companies: NRT, HomeServices of America, and Long & Foster, simply because they are such outliers that they really skewed the results. For example, #3 Long and Foster more than doubled the sales volume of the #4 company, Prudential Douglas Elliman.
In any case, here are some numbers to chew on:
- The average number of transactions in 2008 was 1,894; the median, however, was 931.
- The average sales volume in 2008 was $498.2m; the median was $208.6m.
- Assuming a 2.5% GCI rate, the average GCI for the Top 750 was $12.5m, with the median coming in at $5.2m.
- Assuming a 26.7% company dollar retained (taken from the 2007 REALTrends Brokerage Performance Report), the average Company Dollar was $3.33m, with the median at $1.39m.
- The companies in the Top 750 employ an average of 271 agents; the median number comes in at 128 agents.
- The average GCI per agent is $53,444, while the median GCI per agent is $38,031.
- The average Company Dollar per agent is $14,269; the median is $10,154.
- In total, the top 750 companies added 43,906 agents in 2008, while 51,753 agents “left” — a net loss of 7,847 agents. (Note that there’s a pretty good likelihood that many of the 51K agents who “left” went to another company, and forms a portion of the 43.9K number.)
- Similarly, 293 offices were opened in 2008, while 355 offices were shuttered, a net loss of 62 offices among the Top 750 companies (less the top 3 outliers).
- Regardless of the above disclaimer about outliers, among the Top 15 companies ranked by sales volume, the #1 company (NRT) did more than #2 – #14 combined: $132B vs. $131.8B.
- If you take the Top 15 companies by Sales Volume and re-rank them by GCI Per Agent, the only company to appear on both lists is Keller Williams Realty, Oklahoma City, who is #7 on Sales Volume and #6 on GCI/Agent with $403K in GCI produced per agent. This would make them the most efficient large brokerage in the country. (At least, based on calculation assumptions.)
- The second most efficient company in the Top 15 by Sales volume is Alain Pinel Realtors, who is #9 in sales volume and #28 on GCI/Agent with $115K in GCI produced per agent. Incidentally, the #1 company, NRT, is 158th in GCI/Agent with $65K GCI per agent according to this report.
- Without question, Keller Williams dominates the Top 750 list in terms of brokerages represented under its brand. 337 of the top 750 are Keller Williams franchises. Coming in second is RE/MAX with 141 of the top 750. Coldwell Banker comes in third with 50 franchises.
There are more interesting tidbits, and there are conclusions to be drawn from the information. But for now, I thought some of the above was pretty interesting.
More to come.
Let us talk about land. About buildings. The pure physicality of bricks, wood, steel beams, stairways, elevators, walls and roofs. You know, real estate.
Normally, the conversation would be all about homes, condos, and the like — the stuff of the daily business of realtors and consumers. But I have in mind a slightly different take.
Let’s discuss brokerage offices.
This topic has been swirling around the industry for quite some time now, but a few recent events brought it into focus for me.
First, the LeadingRE Conference in Scottsdale. I got to speak with Matt Dollinger quite a bit while out there, and thanks to Pam O’Connor’s graciousness, I had the opportunity to hear some of the top broker-owners in the country talk about some of their top issues. The cost of leasing office space and how to minimize it was a frequent topic of discussion.
Second, a brief conversation on Twitter with Derek Massey (@derekmassey) about the desirability of virtual setups vs. physical offices.
Third, conversations off and on with people like Joe Ferrara (@jfsellsius), Eric Stegemann (@ericstegemann), and others who are either trying to start or thinking heavily about “virtual brokerages” with no overhead for office space.
Fourth, this report the existence of which just crossed my RSS feed: Beyond Brick and Mortar, Rethinking the Real Estate Office. I haven’t read it, and at $299 for a copy, I’m not likely to read it anytime soon. But if you have, or plan to, please let us know what the findings are. 🙂
The direct cost of brokerage office is actual, measurable, and large. According to the RealTrends 2007 Brokerage Performance Report (yes, I need to get the 2008 report), all respondents had Rent & Related Occupancy costs that came in at 4.94% of GCI. This figure, however, is a bit misleading in my opinion, because rent and occupancy costs are paid entirely by the brokerage.
Since average company dollar is 26.7% among respondents, the actual direct cost is about 3.7 times the GCI figure in terms of impact on the bottomline. For example, a company with $10m in GCI would end up with $2.6m in company dollar. Occupancy costs, at 4.94% of GCI is $494,000 or 18.5% of company dollar.
Add in the 0.83% of GCI for Supplies (pens, paper, etc.) that having a physical office necessitates, and we’re looking at 21.6% of company dollar going to expenses associated with having physical space.
In contrast, the combined expenses for Communications (e.g., telephone, high-speed internet, etc.) and Technology (e.g., website) for respondents were 5.1% of company dollar. Even if you assume that going to a virtual brokerage setup would double the cost of Communications and Technology, we’re looking at 10% of company dollar expenses vs. 21%.
A 50% reduction in cost is something anyone is going to look at, especially now.
vs. Indirect Cost
There is, however, another side to the equation. Actually, two other sides. That makes no sense at all, so I suppose it’s more like two factors on the other side.
First, agent productivity.
Some of the brokers at the LeadingRE show expressed the view that agents are unquestionably more productive when they are sitting together in a physical office. Unfortunately, I don’t know that there is any study or data available on the relationship between office and productivity. Are we talking a 100% improvement or a 1% improvement?
The impact of productivity is far-ranging, however. Let’s take that hypothetical brokerage from above and extend the analysis. Based on my bad math, it goes something like this:
To do $10m in GCI, at an assumed rate of 2.5% per side, and a avg. Home Price of $250,000, that brokerage had to do 1,600 transaction sides totalling $400m in volume.
If we further assume that every agent did 20 transactions, that translates to 80 agents. (Now, I know the reality is 80/20 rule, where 20% of the agents do 80% of the transactions, but for simplicity’s sake, let’s pretend they’re all robots.)
A 10% decrease in agent productivity by going virtual means a loss of $1m in GCI, resulting in a $267K in lost company dollar. The net savings from shutting down the office then is only $227K. If the productivity loss is 20%, then Hypo Realty ends up losing $40K from the ‘cost-saving’ move as the $534K loss in company dollar more than offsets the $494K in savings.
Second factor, however, is agent splits. One of the justifications for a brokerage charging a split is to pay for overhead, such as office space. Get rid of that, and it seems unlikely that the brokerage can maintain the same splits.
Moving from a 26.7% company dollar scenario to a 5% decrease — 21.7% company dollar — means that even if the productivity loss is only 10%, Hyop Realty is now losing $140K from its ‘cost-saving’ measure: decline of $717K in company dollar vs. saving $494K in rent.
All of a sudden, going all virtual doesn’t seem quite so attractive.
And neither of these factors take into account possible ‘soft’ costs, such as loss of brand value due to not having any storefront space in a highly visible street, or possibly a more difficult time in recruiting, or any of the other hard-to-measure impacts.
So What’s the Answer?
Because the financial ‘model’ above is so quick and dirty, it may be that there’s a balance point, especially given the 80/20 rule of productivity where you provide office space to your most productive 20% and gain the benefits of that, while saving on occupancy costs for the 80% who aren’t producing much anyhow.
Without analyzing a particular company’s financials and its market conditions — e.g., prevailing rents for store-front office space — it’s impossible to say whether Virtual is better or Physical is better.
But I figure folks more knowledgeable than I will step forth and provide further insight. In particular, I think some sort of metrics of agent productivity would be enormously helpful. Perhaps the Inman report has that answer.
Looking forward to your thoughts.
So it turns out that in addition to ruling the world from the Skull & Bones tomb, Yalies also get involved in real estate from time to time. There’s even a group called Yale Alumni Real Estate Association (YAREA, pronounced Y-Area) that just held its annual conference. I was invited, so… I went.
Since the theme of the conference was on “Green Real Estate”, and this was an area about which I was more or less wholly uneducated, the day turned out to be one of the most enlightening of my career in real estate. A blogpost is really not the place to describe everything I’ve heard and learned, and the people I’ve met, but I do want to touch on some of the high points.
It turns out that in the world of real estate high finance, green is more or less a requirement. Panelists such as Cherie Santos-Wuest, the Director of Global Social and Community Investments for TIAA-CREF, and Victoria W. Kahn, Managing Director of ING Clarion, made it clear that for them to consider investing in real estate projects, those projects have to meet certain green standards, such as LEED.
Considering that these folks have billions-with-a-B dollars under management, and make eight and nine-figure investment decisions… one would do well to take notice.
Which makes me wonder whether large-scale residential developers, such as Lennar or Hovnanian, ever put together a green subdivision. And by that, I do not mean — and the folks at the conference do not mean — slapping solar panels on McMansions and calling them “green” houses.
My thought is that while this development is still limited mostly to high-end commercial real estate projects, I see the requirement to be much more environmentally conscious filtering down the ranks first to regional banks then local banks. It might not be tomorrow, or next year, but I could see a time in the near future when your local S&L will be demanding that the local developer putting up a spec home include rain harvest and greywater recovery systems.
Green Ain’t Mainstream Until It Can Move to the Suburbs
One thing that was very evident — primarily because one of the panelists on the Green Cities panel said it — is that there is a very strong hostility to suburbia. The green movement is the urbanist movement is the green movement.
The reasoning is extremely solid. Cities cut down on transportation from one building (your house) to the next (your office, the store, etc.). Cities enable walking or biking to locations, or public transportation, whereas suburbs are inherently built for the car culture. Indeed, one might say that the American car culture would be impossible without suburbia, and that suburbia was made possibly only because of Henry Ford and his progeny.
Having said that… unless there is a wholesale change in American culture, most families and people are going to head to suburbia at some point in their lives. Homeownership is the American Dream, and for whatever reason, owning a co-op ain’t really the same thing psychologically. Also, people tend not to feel the need for more space and a backyard and such until they are expecting their second child… but once they do….
Plus… let us face facts. Living in the city — in any city — is far more expensive than living in the ‘burbs on a per-square-feet basis. I would have loved to have stayed in New York City with my two kids, but the equivalent space I have in my tiny little house in Millburn would have cost not double, not triple, but quadruple in NYC. To me, it seems a simple matter of supply & demand. Cities have less land; more people want the convenience of city living; ergo, prices will be high.
My sense right now is that this movement is here to stay, whether you believe in the whole Anthropogenic Global Warming thing or not. (For the record, I do not, and I think Al Gore is a buffoon.) Because there are other economic benefits to green buildings — lower energy costs, less water usage, and better health are all great things to have even if you think carbon footprint is something to be maximized if at all possible.
But equally clear at the moment is that the green building movement is still restricted to large commercial developments or large multifamily projects, and remains a fairly small niche. Until it can cross the gap into the suburbs, impacting single family residences and suburban buildings, and leave behind the elitist disdain for suburbia, I don’t think green buildings can be a mainstream phenomenon.
Costs of Green Technology Must Come Down
A big part of the equation is the cost of green technology and green building techniques. I got to listen to what was one of the most fascinating discussions about Green Buildings by some of the premier practitioners of the craft. Architects such as Mark Simon of Centerbrook, Stephen Kieran of KieranTimberlake, and Rafael Pelli of Pelli Clarke Pelli gave presentations on some of the techniques they used on their green building projects and… let me just say that my respect for the architect profession increased by orders of magnitude.
The amount of thought these talented architects put into things like designing a wall — a topic to which I have never given a moment’s thought — is simply amazing. And the impact of that design is similarly amazing. I wish I had slides of Stephen Kieran’s presentation where he showed that a properly designed wall has three times the impact of solar panels on energy efficiency.
This intellectual work has to make its way into the mainstream of American homebuilding industry before the crossover can truly happen. We’re starting to see it with EnergyStar appliances, and with double-pane windows and such.
But technology like geothermal heat pumps, dual-flush toilets, greywater recovery, rainwater harvesting, and of course the photovoltaic cells have to all come down in price and become far more widely available. I was privileged to take a tour of Kroon Hall, the new home for Yale’s Forestry and Environmental Studies Department, and the building is simply a marvel. I wanted almost all of the features in that building in my house — and keep in mind that once again, I do not believe in AGW — but the cost is still exorbitant for single family homes.
Last, But Most Important… Consumer Demand
Today, the consumer demand for green buildings is simply… meh. In other words, all things being equal, people would prefer to be in a green building. But all things can’t really be equal when you’re investing in green technology. Yes, for large multifamily or for big commercial buildings, the savings in energy alone could probably pay for the investment.
But as yet — and based on like, no evidence, but plenty of anecdotes — consumers aren’t willing to pay a significant premium for green homes. There has to be a relatively short horizon for payback on any investment for consumers to take green buildings really seriously.
Having said that… the Green Building trend is here to stay. And it will accelerate and continue to do so. Even after the whole global warming fraud is exposed as pseudo-science, the green building trend will stick because so much of what it proposes is common sense: use less energy, use less water, be smarter about designing buildings, and don’t stuff your home with dangerous chemicals if you don’t have to. As prices of technology come down, and smart architectural and materials design continue to filter downwards from the big commercial projects, I think consumer demand will be there.
I think I got a glimpse of the future last Friday. And the future is green.
So I restored the original Notorious ROB header image (of Anakin becoming Darth Vader) in tribute to Joe Ferrara of Sellsius (@jfsellsius) who liked that. Then I heard from others that the header image is full of disturbia and sturm and drang angst. You know what that means.
Time for a poll.
Let your voice be heard!
Just caught Coldwell Banker’s new campaign on TV while watching some animated movie with the kids. Here it is:
Wow, what an improvement over the misguided Talking Heads campaign:
I do think CB should have stressed the 103-years of experience thing just a bit more. Talked about how they’ve seen ups and downs, and helped clients through good times and bad, etc. Something kinda like this ad:
Since Coldwell Banker is probably the only real estate brand that could do a “heritage” ad like this, I rather think it ought to play up that advantage. Especially now.
But that minor kibitzing aside, the new ad is effective all around. It’s emotional in just the right way, strikes the right tone of positivity and reassurance, and reminds people that a house is not a bond fund but a place to live.
Back that campaign up with a social media blitz on all channels reminding people about how special their home is, how CB’s heritage helps in this time of uncertainty, and the like, and I think CB has a winner on its hands.
Anyhow, kudos to the marketing team at CB. They got this one right, in my view.