Boise Real Estate Blog

Size Does Matter !!

If you own a real estate office, trust me ~ size matters!

And, contrary to popular belief, bigger is not always better ~ especially in this market!

The traditional real estate office model consists of hiring a herd of agents if they can fog a mirror and hoping they sell something because the broker is keeping 40-50% of their commission.

That works pretty well when buyers are in a feeding frenzy, but those days are now a speck on the rearview mirror.

The reality of our current Boise real estate market is that brokers who still cling to that outdated business model are dealing with a phenomenon known as “too much month at the end of the money” (aka “more overhead than revenue”).

Most people don’t have any idea what it costs to run a real estate office.

Here’s how it pencils:

First, the broker needs a place for all of those agents to come and sit, drink coffee, and commiserate about how bad things are.

That office space can easily cost between $10,000 to $12,000 a month.

Then the broker needs a secretary to answer the phones, which works out to about $2,500/month.

Then, the broker needs an office manager to make sure the paperwork is complete and that the Idaho Real Estate Commission will bless the trust account during the annual audit.

You can figure about $3,500/month for an office manager.

Then there’s phones, computers, copiers, etc. for another few thousand dollars a month.

How about $1,700/month for phone service after paying $45,000 for your phone system?

Oh, I almost forgot ~ signs, print ads, internet, and assorted other assorted necessities.

All told, it’s real easy to spend $30,000 to $40,000 a month for the sheer pleasure of owning a real estate office.

That works out to annual overhead of $360,000 to $480,000 a year for the typical office with 60-100 agents.

Given the fact that the average agent in Ada County closed 1.5 sales in all of 2008, life can indeed be exciting for a real estate broker these days.

Which is why several local real estate firms are in deep doo-doo with their outdated business model of hiring large numbers of agents who sell little in the hopes of splitting commissions with them.

My predictions?

• The market we have is the market we are going to have for some time.
• We’re not going to suddenly return to the 2005 market (we had the party and now we have the hangover).

Which is why we will almost certainly see more Boise Area real estate offices close or merge during 2009.

April 4th, 2009 Posted in Inside Real Estate  Print This Post