Real Estate brokerage Labor Cost Per Transaction Exceeds $900 thru mid-year 2024

Labor cost benchmark in 2024

The study analyzed labor cost 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: Labor cost per Transaction

The analysis reveals that the average labor cost per transaction surpassed $900.  This level has significant implications for the current Real Estate brokerage environment.

• On average, staff labor costs per transaction was $919.50 for the first 6 months of 2024.
• For profitable companies in the study, the average labor cost for the period was $821 per side.
• For unprofitable companies in the study, the average labor cost was $1,046 per side.

Labor cost per Transaction can’t predict profitability

Labor costs per transaction does not correlate to profitability. This was a surprising discovery.  For the companies in the study, the number of closed transaction sides does not increase total labor cost. Additionally, high labor costs are not mean a company had high transaction counts or higher net profitability. Example:

• One company in the study closed 248 sides in the study period with a labor cost of $1,150 per transaction. This company was profitable with a 4.52% EBITDA margin
• Another company in the study closed 250 sides in the study period with a labor cost of $723 per transaction. This company was unprofitable with a loss of negative -0.05% EBITDA margin
• High labor costs do not always predict unprofitability: A review of the  profitable companies in our study shows that 24.14% had very high labor costs - ranging from $1,100 to $4,400 per side - and yet they were still profitable
• There is no correlation between labor costs and agent count:  Monthly labor costs per agent is also not predictive of profitability.  In the study, there were both profitable and unprofitable companies with a high labor cost per agent.

Analysis

Brokerages have long focused on increasing transaction count by increasing agent count.  If transaction counts are increasing or agent counts are increasing, one would expect that costs per agent and costs per transaction should decrease proportionally - but in our analysis, that correlation does not seem to exist.  Here is a graph of 20 companies in our study.  If you look at the companies highlighted in purple.

• One company in the study closed 188 sides with a labor cost per side of $550.  This company lost $32,000 thru June 30th, 2024.
• Another company in the study closed 222 sides with a labor cost per side of $1,547.  This company had a profit of $197,500 thru the same period

Joe Peront, CFO of Century 21 Northeast has long understood the challenge of real estate brokerage labor costs that have a rigidity that keeps them from adjusting to changing markets. Joe writes:  "When analyzing a brokerage’s ability to be profitable, I’ve found that adopting a cost accounting approach offers valuable insights. I start by viewing each transaction as a product being produced. The costs involved in delivering this “product” can be effectively broken down into two categories. The first category encompasses fixed costs, such as rent, utilities, insurance, software, and accounting. The second, more critical category includes variable costs like labor for compliance, training, marketing, and agent management.
AccountTech's recent analysis uncovers two key findings. First, it demonstrated that, despite variations in brokerage size and closed transaction count, there exists a constant and predictable range for the metric of labor costs. Second, it shows that we are failing to adjust labor cost up or down in response to the number of closed transactions. These insights are key to understanding and optimizing profitability across the industry."
 

Commentary

"Our industry is at a pivotal moment in terms of labor cost management," said Mark Blagden, CEO at AccountTECH. "Our analysis indicates that the average labor cost, when evaluated on a  per transaction OR a per agent basis, has reached unprecedented levels - but these KPI are not predictive of profitability. The study shows that companies maintain static labor cost expenditures even when transaction sides or agent count are trending lower.  This in-elasticity of labor overhead is decreasing profitability. With labor as the number one cost to brokerages, the industry needs a new way to benchmark for labor cost that isn’t based on transaction count or agent count. Changing the way we budget for labor is crucial for companies aiming to optimize profitability”
 

Summary

Labor cost is a remarkably accurate predictor of profitability.  The challenge is that the formulas that accurately forecast profitably can’t be based on getting more agents & closing more deals. 

Upcoming webinar

To dig deeper into these numbers, AccountTECH is going to hold a live webinar as part of their Data Driven Decision making for profitability series.  In this webinar, the hosts will review the study findings.  But more importantly, the webinar will reveal a predictive formula that came out of the study. The labor cost formula appears to be able to accurately predict what a brokerage’s net profitability percentage will be - just based on labor costs. It turns out that if you know your company’s labor cost, you can know in advance what your Return of revenue will be at the end of the year.

Data-driven decision making for Profitability: Return on revenue margins, labor costs & how to calculate future EBITDA margins using labor cost

Webinar time & date: Tuesday, Sept 3rd, 2024 at 2:00 PM EST
Here is the link to sign up for the webinar Webinar is free but space is limited.
Sign up before all the seats are taken.