Study: Real estate firms thrive on repeat and referral business

Survey shows 42% of surveyed firms offer ancillary services.

Referrals from past and repeat customers still generated the greatest number of inquiries for real estate firms in 2020 with 30% of brokerage business coming from this source, the same amount as in 2018, when the survey was last completed.

On the flip side, interest generated from traditional open houses declined from 2018, according to the National Association of Realtors2021 Profile of Real Estate Firms. In 2018, 1% of surveyed brokerages said their business came from open houses. In 2020, less than 1% did, likely because the pandemic put a damper on in-person open houses. Interest generated from websites and social media, however, remained steady from 2018.

Brokerages are thriving

Where brokers are finding business has changed slightly; however, the volume of sales have skyrocketed during the pandemic. According to the report, which is based on data from the 2020 calendar year and collected through a random sample of 6,253 Realtors who were executives and senior management at real estate firms, found that residential real estate firms had a median sales volume of $6.6 million in 2020 as compared to a median of $5.3 million in 2018. In contrast, brokerages in the RealTrends 500 had a median sales volume of $1.3 billion in 2020.

This is a clear reflection of the overall increase in the number of homes sold in 2020 compared to 2018. In fact, the largest firms in the nation grew at the highest year-to-year rate in 2020 than any other year in the ranking’s history. 

The 2021 RealTrends 500 report revealed a massive amount of growth between 2019 and 2020 (data for the 2021 RT 500 is pulled from 2020 data.) Closed sides were up 15.8% over 2019. When compared to the 5.6% national increase of existing home sales, we see that, for the fifth year in a row, the largest brokerage firms in the country gained market share. Sales volume was up an astounding 25.9%. Both of these growth factors are the largest that RealTrends has ever seen in its rankings. Surely, that growth happened for smaller firms, as well.

The 2021 NAR report also found that 78% of residential real estate firms surveyed had one office and that 49% of firms with one office had a median sales volume of $4.5 million. However, 1% of firms with one office had a sales volume between $250 million and $500 million. For reference, in 2018, zero one-office firms recorded a sales volume above $250 million. 

Also reflecting this increase was the total number of transaction sides by residential real estate firms. The 2019 report found that the median number of transaction sides in 2018 was 26, but the 2021 report found that the median had increased to 27 in 2020. 

Competition from virtual brokerage models

Another interesting change from 2018 is the percentage of firms that believe their current competition comes from virtual firms, such as eXp and Fathom. The report found that across all firms, 10% believe their competition comes from brokerages with no fixed location, as opposed to 5% in 2018. However, half of all firms still believe that their main source of current competition is traditional brick-and-mortar large franchise firms.

With margin compression, many brokers are looking at alternate ways to boost profits. Surveyed firms offering such services grew 3% between 2018 and 2020. The only surprise here is that that number isn’t higher. However, with 49% of the firms surveyed being one-office shops, that could be the reason. The share of firms making a percentage of net revenue from ancillary services, such as relocation services, mortgage lending, title and escrow services, and home improvement services, increased from 39% in 2018 to 42% in 2021. It is important to note that firms with three or more offices saw a decrease in the share of firms gaining revenue from their ancillary services.

Like in 2018, business brokerage is the most common ancillary service offered, with relocation services, home warranty, mortgage lending and home improvement services taking up the other top spots. However, NAR found that most firms surveyed still do not offer ancillary services, with only 21% of firms offering the most common ancillary service.