Notorious R.O.B.

 

RealTrends does some great work. I love playing with their numbers, when they become available. The most recent one is a project they did with the Wall Street Journal ranking the top 1000 real estate agents and teams in the United States. (And, no, I have no idea how they got the data, what their methodology was, etc.)

Click through to the RealTrends site to see the top 250 real estate agents and agent teams. Congratulations to all Notorious readers who made the list, in case such a person exists.

I had a few minutes so just played around with the numbers a bit. Some interesting, or not so interesting, findings there.

Read the rest of this entry »

Just thought some of you might want to check out this new post over on 7DS Associates blog:

The annual Brokerage Performance Report put together by REALTrends is one of the most useful and important studies for the real estate brokerage industry.  Unfortunately, the last report was released in 2007, and nothing has been released since then.

The trouble with the 2007 Report, as valuable as it is, is that it uses 2006 data from respondents who submit the information voluntarily.  And housing market started to decline sharply really starting in 2007, and 2008 may have been the annus horribilis of the real estate industry.  It may be that the respondents of the REALTrends study simply didn’t want to tell anyone how horrible a year 2007, and then 2008 was even worse.

Either way, lacking 2007 and 2008 performance data means that it is nearly impossible to guess what constitutes “average” performance.  And lacking information means decisionmaking is at best made in a vaccuum with no baseline, and at worst is haphazard.

I’ve always been keenly interested in tracking as much performance data as possible.  And I’m into speculating on stuff I can’t measure.  So I figured I’ll take a foolish crack at some numbers.

[...]

Continue Reading

Fact is, we as an industry really need some better data on company performance. It’s hard to know how well or badly you’re doing if you have nothing to measure against. Here’s to appreciating REALTrends, and hoping they get back to doing the awesomely useful Brokerage Performance Study series again.

-rsh

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.

-rsh

Over at the OnBlog, I posted an item discussing the difference between how much brokerages spend on print advertising vs. their website. That was for the clients (past, present and future) of Onboard Informatics. This blog is where I get to talk speculative BS with friends in the RE.net.

So… let me start out by saying how much I love the REALTrends guys. They are providing an invaluable service to the industry with their research into productivity numbers and metrics. If you don’t subscribe, and you have anything to do with brokerage operations, you probably should. Go. Subscribe. Buy their reports. Tell ‘em the Notorious One sent ya.

I am getting most of my inspiration from the 2007 REALTrends Brokerage Performance Report. (I’m sure this stuff is copyrighted, but I have no desire to hurt REALTrends; I’m considering my usage of their stuff as fair use in order to discuss the issues.)

Ummm…

So the first thing I noticed is from the Executive Summary, where RealTrends noted that Productivity Per Person (PPP) dropped again in 2006, and noted that this drop “continue[d] the downward trend of nearly 10 years”.

Wait a second. Nearly 10 years? Ten?

So we’re talking about 1998 – 2008… during which time period we have had the single biggest real estate bubble in the history of the United States, nay, the world resulting in the financial cataclysm of 2008. I don’t quite understand. This means that the PPP is divorced from the real estate market as such — even during the height of the real estate bubble, the PPP dropped.

Let us keep in mind that this ten year period is when the PC revolution truly hit home: “Productivity grew from 1.33 percent to 2.07 percent between the periods 1975-1993 and 1995-2000, according to Dale Jorgensen of Harvard University, Mun Ho of Resources for the Future, and Kevin Stiroh of the Federal Reserve Bank of New York.” If you’re so inclined, you can read the original report here (PDF).  It’s actually really good.

Anyhow… so it appears that in the midst of the biggest increase in worker productivity in a generation, real estate brokerages suffer a drop in productivity.  What explains this phenomenon?

Could it be that real estate is somehow immune to productivity gains from technology? Having email, computer, smartphones, and all the rest simply do not make buyers want to buy any more houses, or buy them faster, or with less work on the part of the agent?  Did real estate agents decide that with all the productivity gains they were making thanks to technology, they weren’t going to work any harder, but spend more time on the golf course?

Again, the market conditions of the past couple of years can’t explain this. This drop in productivity was happening throughout the biggest boom in real estate in memory. So what explains the PPP numbers?

WTF?

If those numbers make you scratch your head, this one will blow your mind.  Again, according to the REALTrends Report, “Profitability slid to 4.3% [in 2006] from 7.4% [2005] and 7.8% [2004] for the previous two years respectively.”

Now.

From the exact same executive summary, we learn that

(a) employment costs dropped 0.4% of GCI from 2005 to 2006;

(b) advertising expenses dropped 0.55% of GCI from 2005 to 2006; and

(c) occupancy costs (i.e., office rent) rose 0.3% of GCI from 2005 to 2006.

These three things taken together make up 75% of all costs of operation in 2006.

So in summary we have a whopping 41.8% drop in profitability for all brokerages in spite of their cutting employment costs and advertising costs, because office rent went up by 0.3% of GCI?

It seemingly makes no sense, until you consider that apparently, at least the Top 100 Brokers (that is, the Top 100 of the REAL Trends 500 list) actually added agents and offices between 2005 and 2006.

In 2005, there were a total of 210,154 agents working for the Top 100; in 2006, that number was 212,431.  The number of offices went from 4,034 to 4,077.  Meanwhile, PPP (Per Person Productivity) went from 9.5 to 8.1 — a drop of 14.8% — and total # of closed units went from 1.99 million to 1.73 million (a drop of 13%).

Incidentally, the 2005 numbers were worse than 2004 numbers.  PPP went from 10.0 to 9.5; total closed units went from 2.08 million to 1.99 million.  But agent numbers went from 208,000 to 210,000 and office numbers went from 3,998 to 4,034.

So let me get this straight.  Brokers were adding costs while their productivity and revenues were falling… not as an aberration, but as part of a trend?  And people were trying to become real estate agents in the midst of what was clearly a bubble bursting?  And other people were hiring them?

o.0

Maybe the three-to-one spend on print advertising over website is not the biggest problem that brokerages have.  And maybe our industry needs fewer Web 2.0 consultants and more straight-up business consultants that understand arcana like “cash flow” and “ROE”.

-rsh