A rhetorical question, and yet a painful reality for many real estate organizations — are you running a non-profit organization?   It is estimated that up to 70% of real estate brokerages fail to report a profit each year.  This is a statistic that has been a reality for many years, and can only be worse in today’s challenging market. 

In the 1990’s surveys of real estate organizations revealed that most brokerages were only retaining about $150.00 per transaction.  It was an alarming statistic that served as a reminder that brokerage models would need to adapt in order to survive changing trends.  Today, most brokerages would enthusiastically embrace the ability to create that type of profit per transaction.   Over the ensuing years, brokerage profitability has further declined.

In 2003 a leadership meeting was held by a midwestern regional brokerage.  The topic of the meeting was profitability and ancillary services.   At the meeting, it was announced that the profitability per transaction had sunk to an all time low of $ -92.00 per transaction.  Yes, that is negative $92.00.   However, this horrible fact was quickly glossed over when it was announced that ancillary services profit from mortgage and title transactions was in excess of $300.00.  Therefore all the attendees had reason to celebrate that the net profitability of the company was around $200.00 per transaction.    This almost sounds like the questionable fiscal management policies of our U.S. Congress.

Why can’t a brokerage make a fair profit without the subsidy of ancillary services?   It can be done.  It is not a dream, but a reality in those firms who have the financial management accumen, systems and accountability to bring a profit to fruition.

Are you budgeting your profit?  If you were to buy an investment property — you’d only buy it if it would return to you the income that you felt was needed on your investment.  You might expect a 8%, 12% or 18% return on your money.    Why wouldn’t it be the same in real estate brokerages? 

The bottom line is that less than 10% of all brokerages are actually managed by business minds with sound financial principles.    It takes a CEO mindset to create a profit.  You have to plan for it, keep your eye on the numbers, and track each and every financial and market indicator. 

Below is a presentation that I recently gave at a gathering of the top leadership from Century 21 Real Estate, LLC.    The slides from the presentation are available for your convenience.   Please let me know your thoughts and how your brokerage is faring in this challenging market.

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