Modest Gains: More Brokerages Turn Profitable by mid-year 2024

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Aug 20, 2024, 09:08 ET

BOSTON, Aug. 20, 2024 /PRNewswire/ -- A study by AccountTECH, a leading provider of enterprise-class accounting software for the real estate industry, reveals a slight improvement in the number profitable of brokerages in the first half of 2024 compared to the previous year.

Profitability Trends in 2024

Operating profit percentage for study participants Jan - June 2024

The study analyzed EBITDA margins for brokerages from January to June 2024, focusing on 100 randomly selected companies known for maintaining accurate GAAP protocols and excluding those inflating profitability through broker/owner personal sales. Collectively, these 100 companies closed 51,769 sides with 17,749 agents in the period.

Key Findings: Profitability and Losses

AccountTECH's in-depth analysis found that 62% of the brokerages achieved a positive net operating profit in the first six months of 2024 - a modest increase from 60% for the full year 2023.

Average Operating Profit per Agent: Profitable companies reported an average operating profit of $1,767 per agent for the period, or $294 per agent per month.
Average Operating Profit per Side: Profitable brokerages earned $589 per transaction side.
Losses in Unprofitable Companies: Unprofitable companies faced an average loss of $1,284 per agent for the period, equating to a loss of $214 per agent per month.
Average Operating Loss per Side: Unprofitable brokerages lost $462 per transaction side.

Profit Margins and EBITDA Insights

The study also explored EBITDA margins, a key indicator of the scale of profitability. More than half of the brokerages analyzed had EBITDA margin percentages between -3% and +3%. Notably:

Narrow Margins: 21% of the companies had losses with negative EBITDA margin percentages between -1% and -2%. This indicates that many brokerages are only slightly unprofitable.
Challenges in Achieving High Profit Margins: Only 5% of the brokerages reported EBITDA margin percentages above 9%. This underscores the difficulty of maintaining significant profitability in the current market.

Commentary

Mark Blagden, CEO of AccountTECH, commented on the findings: "While these results show a slight positive trend, they also highlight challenges for the industry in the coming year. Many brokerages are failing to create adaptive business models that can adjust expenses in response to fluctuating gross profits. Additionally, EBITDA margins of 3% or lower are concerning; such slim margins may not withstand even minor reductions in commission rates. Faced with the possibility that the NAR settlement may drive commission rates generally lower, brokerages may need to accelerate their efforts to streamline overhead costs to attain or maintain profitability."

Conclusion

This study indicates that while U.S. brokerages are beginning to focus more on profitability, significant challenges remain. Many brokerages are trying to become profitable by adding revenue through mortgage, title, and insurance services. But these complementary businesses should not become a replacement for brokerage profitability. The results of many of the companies in this study show that brokerages can return meaningful profitability thru efficient operations and strategic cost management.

About the company

For over 25 years, AccountTECH's team of real estate accountants and software engineers have been building tools that increase the efficiency of brokerages. Their latest flagship product is darwin.Cloud - a 4th generation evolution of their popular back office accounting software. The team is constantly adding automation and integrations towards the goal of single-point-of-entry. Their motto is: data entry can happen anywhere, but everything winds up in darwin. In their work with clients, partners and each other, they bring integrity to every interaction and every line of code.

AccountTECH www.accounttech.com (978) 947-3600

For sales inquiries, please contact: Theresa Hurt [email protected] (978) 710-0071

SOURCE AccountTECH