The 2005 Brokerage Performance Report, an analysis of the nation’s top performing residential real estate companies, is at the printer and while containing no startling news for the industry and its leaders does support the notion that 2004 was a very good year overall for fellow broker/owners with some promises that ’05 and ’06 could continue that trend or be even better.

Three significant pieces of data are worth recognition. While greater detail of each of these is contained in this year’s report, a quick overview should be helpful as companies begin to plan for the coming year or look to longer range strategic planning.

The first data is that the average reported profit (net operating income before owner‘s compensation) increased significantly over 2003 to an average for those participants in the study to 7.8% of gross commission income.

The second number with significance is that the retained company dollar percentage also increased. This is important in light of the fact that there continues downward pressure on company dollar from agents seeking greater compensation and the rush to recruit experienced agents at what can appear at times to be “any cost”.

The third important factor and one which is commented on in the report but really is substantiated through the Real Trends Big Broker Report is that the effective commission rate per closed revenue side continued a three year upward movement. Though very modest it at least did not head downward as had been the case for years 1991-2001.

Are we trending in the right direction? Hopefully so. In years past the profitability of real estate brokerage companies was questionable or even considered a loss leader for advancing core services such as mortgage or title operations. A steady increase in profitability over the past three years that the Brokerage Performance Report has been conducted is encouraging.

How much of this increase in profits is derived from the rising tide of price appreciation is not known nor was it calculated. Certainly it has some bearing on the matter. The latest data from the Office of Federal Housing Enterprise Oversight (OFHEO) showed a stunning 12.5% rise in housing prices over the past year, which is the largest calendar year rise in more than 25 years. Moreover, prices have risen 8.3% on average for the past 5 years, despite a recession and extremely sluggish economic recovery.

There were certainly come cautious warnings from the report as well. Some will be addressed in later issues of Real Trends but one significant one is the continuous slide in per person productivity. As an industry we are not very efficient. The 2005 Big Broker Report containing data on over 500 of the largest real estate companies continued to show the per person productivity slide over the past 4 years ending last year at 10.8 transaction units closed per agent (302,000 agents) or less than one per month. This reduction continues to put pressure on companies to be more observant for cost controls.

As the planning dates roll around for 2006 you and your management staff may wish to embark on some new ground. Budgeting for retained company dollar of effective commission rate % are solid expectations that should be communicated to management in addition to just the dollars and cents. Budget for profit both in terms of dollars and as a % of gross commission income. Why must profit be a simple calculation of subtracting operating expenses from company dollar to see what you have left? Is 8% or 10% a reasonable number to set as the target or plan for your company? There were several respondents in the this year’s Brokerage Performance Report with net operating profit in excess of 20% of gross commission income and they consisted of multi-brands and non-branded companies. If we set the goal beyond what we may think is the reach of our company who is to say that it can not be achieved?

If there is a “housing bubble” as some may suggest or if there is not is this something that we can control? We can plan for 2006 and beyond based on known facts and data and what our vision may be. Interest rates have been a variable in the business forever but it is up to us to plan accordingly remembering that real estate brokerage is a capitalistic enterprise and as such we are entitled to reap a profit.