The real estate and mortgage industry has long been the largest source of investments in the world, but many real estate companies are now facing the specter of going out of business. The following article provides information regarding the problems real estate companies face and how current economic conditions play a substantial role in those problems.
Because real estate sales personnel are usually compensated by commission, real estate companies save much of their overhead by not having salaried personnel. However, real estate companies have many areas of overhead that other businesses do not. Ownership of office property, operating expenses and insurance are just some of the considerations that brokers of real estate firms have to contend with. When their agents are not making sales, the entire brokerage suffers. Tightening loan restrictions and fear in the real estate market has forced many brokerages into a state where expenses are outstripping income.
The public view of real estate companies is based on an image they project of success. Large offices, fancy decorations and money spent on image enhancing public events and sponsorships are part of the picture. While this ties directly into overhead, the image that a firm projects is another consideration in itself. Hints at brokerages being unsuccessful can mean a death sentence for a firm. Many major expenses are incurred for the sake of the image of a brokerage and portraying it as a successful business no matter what the cost.
Errors and Omissions Insurance
One of the most expensive problems that affect real estate companies has to do with the errors and omissions insurance they are required to carry for all of their sales people. Agents making errors or omitting details can cost real estate brokerages thousands of dollars for each mistake. Carrying insurance for a real estate company is extremely costly.
Another large problem that affects many real estate brokerages is retaining agents. Many agents are leaving the field and getting sales positions in other industries. The fewer agents a brokerage has, the more overhead it incurs and the less potential it has to make sales.
A common misconception in the public is that real estate agents are greedy and dishonest. With the ability of many consumers to get information on the Internet, the need for a real estate agent is decreasing. While many real estate companies attempt to combat this perception through advertising and other resources, it appears that fewer people are using real estate agents to facilitate transactions.
In light of recent decreases in market activity, many real estate companies are merging with other companies to increase financial stability. In addition, the loss of real estate agents could be looked at as a benefit because it weeds out nonproductive or part-time agents, leaving room for agents who are hungry for education and success.