Brokerage leaders expect profit margins, sales to decline in 2023
A survey of brokerage leaders across the U.S. found general pessimism around the economy, but confidence in local markets.
Key points:
- The Delta Real Estate Leadership Survey polled brokerage leaders at small and large firms accounting for 60% of transactions in 2022.
- Despite expectations of declining profit margins, a majority of the leaders expect to gain market share.
- Agent training and recruiting were among their top priorities for 2023.
More than half of real estate brokerage leaders surveyed say they expect their profit margins to decrease in 2023 and believe total transactions will drop from 2022. Yet a majority also see their local market share rising this year.
The Delta Real Estate Leadership Survey revealed that none of the survey's respondents expect there will be "significant" improvement to the overall economy this year at any level — local, state, national or global.
More than 100 brokerage leaders — representing firms that, in total, account for more than 60% of all transactions in 2022 — participated in the survey. Respondents were from firms of all sizes, from just a few employees to more than 1,000. The survey was completed in December.
Michael Minard, CEO and owner of Delta Media Group, noted that executives expressed the most certainty about their local economies. "The closer to home, the more confident real estate brokerage leaders are about the economy improving over the next 12 months," Minard said.
"It's important to note not a single real estate brokerage leader of the more than 100 professionals surveyed believes the global, U.S., state, or local economy will 'improve significantly' in 2023," Minard added.
In an interview with Real Estate News, Minard said that it's clear from the findings that "firms and real estate professionals that do well during these times will be focusing on the core principles of the business much closer than they have in the past 24 months.
"This focus includes the need for management to adopt more diligence in watching business and market metrics while continuing to push their business forward in their local markets and be ready to make adjustments as needed," he said.
Respondents bullish about local economies
Survey questions focused on economic conditions and expectations in 2023, including the potential impact on real estate transactions. Here are some key takeaways:
About three-quarters of respondents think their local and state economies will stay the same or improve.
Nearly 60% said their confidence in state and local economies is unchanged from a year ago.
More than 60% see the global economy worsening, while slightly more than half believe the U.S. economy will decline in 2023.
Less than 5% expect the global economy to get better in 2023.
Minard said what was most surprising about the results is how respondents saw their local market versus the broader U.S. market. "Our respondents represent over 60% of the transactions in the country [so] they do represent the broader U.S. market," he said.
Mixed findings on the housing market
Real estate leaders offered mixed views on the economy's potential impact on their local business in the next 12 months.
They were evenly divided over how real estate transactions may be affected by economic conditions in 2023: A third said real estate sales will improve, a third see the market as unchanged, and a third see business worsening. But only 3% believe their local market will worsen significantly in 2023.
"Leaders need to continue pushing forward with sound fundamentals but be very diligent in watching the businesses more closely," Minard concluded.
Training and recruiting among top priorities
When asked about the "single best thing" they did for their business in 2022, many brokerage leaders mentioned agent training and recruiting, with 59% of brokerage leaders planning to increase their training and coaching efforts in 2023.
But they noted that finding and keeping good agents isn't easy. Nearly two-thirds of respondents said that recruiting agents would be one of their biggest business challenges this year.
Of the survey's respondents, nearly one in five manage brokerages with more than $3 billion to over $10 billion in projected 2022 transactions, according to Delta. Roughly a quarter manage brokerages with $1 billion to $3 billion in sales.
Twenty-one percent oversee brokerages with $501 million to $999 million, and 38% manage firms with $500 million or less in total transactions.