Residential Real Estate Brokerage and Management
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Industry Overview
The US residential real estate brokerage and management industry includes about 165,000 companies with combined annual revenue of about $170 billion. Major residential leasing and management companies include AIMCO, Equity Residential, and AvalonBay Communities; major residential real estate brokers include HomeServices of America and Long & Foster. The industry is fragmented: the 50 largest companies account for less than 30 percent of revenue.
Competitive Landscape
Demand is driven by population growth. The profitability of residential real estate brokerage and management companies depends on demand for properties and the volume of transactions they handle, both of which are usually higher during periods of strong economic growth and can be negatively impacted by a recession or too much new construction. Large companies have only modest economies of scale and benefit mainly from better name recognition than smaller rivals. Small companies compete effectively by developing expertise in a single market or region.
Products, Operations & Technology
Major services include real estate brokerage (45 percent of industry revenue), leasing residential units to tenants (35 percent), and property management (15 percent). Many companies provide multiple services; for example, companies that lease residential units to tenants might also manage the properties. Some residential real estate leasing companies operate as real estate investment trusts (REITs), which are covered in a separate industry profile.
Residential real estate leasing involves connecting property owners with tenants. Leasing companies might represent properties that they own themselves, properties that are owned by others, or properties that they lease themselves and then sublease to tenants. Companies also engage in related activities that grow out of their particular area of expertise. Apartment lessors may also buy, sell, develop, and renovate properties, build new ones, and manage property for others. Assisted-living community operators may also operate nursing homes and provide other health-related services. Many residential rental properties, especially duplexes and single-family homes, are managed by individual owners.
Residential real estate brokers bring together buyers and sellers of individual properties, assist them in setting a price, and arrange for appraisals, inspections, and other services. Most transactions include two brokers: one assisting the buyer and one the seller. The seller's broker charges the seller a brokerage fee, usually 5 to 6 percent of the sales price (for expensive properties, in especially weak markets, or if the parties involved have a long-term business relationship, the fee may be lower), which is split with the buyer's broker. The buyer's broker is paid by the seller, out of the money made from the sale. Because this can create a conflict of interest for the buyer's broker, some buyers prefer to hire a broker not paid on commission. In many cases, the seller will build the commission into the sale price, causing a buyer to pay the commission indirectly through the purchase amount.
Property management companies are involved with marketing (ensuring that the property is as fully occupied as possible); financing (determining and negotiating lease length and amount); and building operations (hiring and supervising local staff, and providing or arranging for utilities, maintenance, and other building services). Many owners of real estate actively manage their own properties, but a large number of passive owners hire a property manager to operate their buildings.
