Whether your brokerage is large or small, boosting the bottom line is the focus on the game when it comes to operating a profitable real estate business. In an industry that is continuously changing and evolving, you must continue to adapt the ways you think about—and approach—profitability.
Profitability is how efficient you are at generating earnings, and earnings — or profits — are what’s left after all expenses have been paid, except taxes and interest. For a real estate brokerage, these expenses include agent commissions, employee salaries and benefits, and office expense, which is sometimes shared by agents and sometimes paid entirely by the brokerage.
“I’m looking forward to the next five years,” said Sherry Chris, president and CEO of Better Homes and Gardens Real Estate — who offered her perspective on broker profitability from a 10,000-foot level during the 2017 REALTORS® Conference & Expo.
“The industry is changing significantly, as is the brokerage business,” added Chris, who explained that in the future, brokerage companies with diverse revenue streams will be most profitable.
From ancillary services such as mortgage and title to lead generation and relocation, Greg Carlson, founder and owner of Five Star Real Estate, shared Chris’ view into the brokerage of the future.
“If you’re currently sitting with one stream of revenue, you’re very susceptible,” explained Carlson. “With less profitability, not only are there going to be less agents/brokers, but also brokers are going to have to become strong business people. They will need to know their numbers and have metrics, tracking, measuring and benchmarking in place.”
Building your own office also can help control costs and overhead. Having extra revenue that comes from renting unused space in the building keeps your costs down. It also can be a good investment.
“It’s certainly easier to start from scratch,” said Chris, who built the Better Homes and Gardens Real Estate brand from the ground up, “but it’s not impossible to change an existing company.”
Brokers must know their numbers and review them every month. Also, analyze the financial impact of potential changes in your business before you make them. Moreover, have an expense budget.
It’s also important for brokers to establish their culture early on. By showcasing what you stand for, how you’re giving back to the world and who you are as a brokerage company/brand, you will successfully establish your benchmark, which will allow you to bring the right people in.
“As more agents are working offsite, it’s getting harder to draw them inside brick and mortar buildings because they don’t think they need it,” said Leigh Brown, broker/owner of RE/MAX Executive Realty in Charlotte, N.C. “As brokers, it’s our job to provide meaningful education,” she continued. “This is the No. 1 thing our agents need, so it’s critical that we give them what they can’t get in other places.”
Social media and technology also is a tool every broker can leverage. It can save you time and allow you to build relationships with tech-savvy clients.
Hiring great people also is imperative for any brokerage. Talented, hard-working agents and staff are a big reason why any firm is profitable. Smart brokers are always looking for stars.
Other key tips include being adaptable and mining your database. Never let potential sales slip through the cracks by losing touch with old clients.
Lastly, have a plan and put a strategy in place to achieve that plan. Monitor your progress toward goals.
For Carlson, mitigating risk and enhancing his firm’s bottom line begins with supervising agents through a variety of means, including dotloop (which allows him to see into transactions), turnkey clauses and even a ‘pre-flight’ checklist.
Chris’ No. 1 piece of advice? “Look for the gaping hole in your marketplace and fill it.”
How can you kill your profits? There are a couple of landmines to steer clear of.
Avoid overspending on things that don’t produce revenue. Keep a close eye on expenses, like advertising. Records of where you get commissions and clients can help you know what is working and what isn’t.
When cutting costs, fight the urge to cut too deeply. You run the risk of cutting the wrong things and then are faced with agents who are leaving because they are not happy.
Don’t be afraid to cull under-motivated agents. Keeping “dead wood” is a recipe for poor profitability. They can be a drag on a brokerage. Hold agents accountable if they want to stay with your firm.
Technology evolves quickly, but it is important to update your technology to stay competitive.