There is a new real estate boom sweeping the industry that few predicted and this one’s different-- it’s not just about home sales. This surge is happening in almost every U.S. market and yet only a tiny percentage of brokers are benefiting from it. This boom is having a quiet and dramatic impact in your market.
It’s the increasing growth and dominance of the large real estate brokerages.
While the market has been good and most brokers are doing well, larger brokerages have increased their market shares sizably. Today, more than half of all the U.S. residential real estate is controlled by less than 1% of the brokers and that percentage keeps increasing. In the 2021 Real Estate Almanac, leading research and advisory firm, T3 Sixty documented the nation’s 1,000 largest brokerages have expanded to 52.2 percent just in the last few three years alone. What is amazing about this growth is that for years industry pundits and newcomers had been predicting the demise of brokers and agents yet the big keep getting bigger. Where is this growth coming from?
It’s coming at the expense of the mid-size brokers.
Real estate speaker and author, Mathew Ferrara said in a recent industry presentation, “middle brokers are worried. They’re in between, basically in a marketplace that’s becoming a barbell-- gigantic on both ends with major players who have 10% plus of the market and the other end made up of discounters, hyper niche brokers, small indies who do limited transactions compared to the large companies and others. The guys in the middle are looking for ways to keep their legacy alive and keep it going.”
Market share has become a major concern. Although most markets have shown growth with local brokerages seeing their revenues increase, often it is driven by the local market trends and housing price increases. Generally, growth is not driven by the brokers themselves. The real surprise is that many brokers find they are actually losing market share to their larger competitors and even new players. For example, if a brokerage has grown 20% over the past year it may seem like a cause for celebration, but if that same market has grown 32%, there is a huge performance gap because that broker is well behind the local market trends. How much are those agents missing out and what happens when the market slows (which it’s starting to do), and those brokers fall much farther than the market falls?
Forward thinking brokers are now working vigorously to fill that performance gap. Many are financially flush from their strong year and are investing in technology, branding, streamlined agent services, recruiting and ancillary services which combine to provide great brokerage economies of scale and profitability. Others recognize that some competing brokers are tired from the pace and they are aggressively putting their cash into expansion through acquisitions. However, many growth-oriented brokerages do not have the financial resources, knowledge, or capability at their disposal, so they explore being part of a much larger family for funding, resources and leverage to take advantage of market share opportunities.
Regardless of the path chosen, increasing market share should be a driver for most brokers. As Mathew Ferrara asks, “are you just surfing the market or making the market?”
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