Real estate agencies are one of the most prevalent types of businesses in Australia — as of 2022, there were 133,360 real estate professionals across the network of 46,000 real estate businesses, according to the Real Estate Institute of Australia.
With this number continuing to grow into 2024, it’s becoming clear that more and more real estate professionals are opting to start their own agencies or work with boutique agencies that still have the potential for leveraging lucrative deals.
Considering that small real estate agencies make up the vast majority (99%) of property services in the industry – you may be wondering what makes them work, and frankly, how they make money. Read on to find out everything you need to know about the role of real estate agencies in the property industry.
Is a real estate agency a profitable business model?
Absolutely. Real estate agencies differ from independent real estate agents and other professionals in that they have a greater capacity to offer more real estate services, and thus more property transactions.
Generally speaking, real estate agencies have an estimated operating profit margin of 20%. This is quite significant when taking into account the high sale and cost amounts that are associated with the property. However, this percentage can also vary depending on the type of services the agency offers. Real estate agencies typically have a sales team of three or more successful agents, and this is what enables them to operate at scale as a favoured business model. In contrast, individual real estate professionals will not have the same bandwidth to handle multiple clients at a time.
Services offered by real estate agencies
Real estate agencies often offer a wide range of services that cover the main needs of both residential and commercial clients. These include:
Property appraisal
Property appraisal is a free service that involves the assessment of a property’s market worth, which is an indication of its sale value. Using various methods such as comparative market analysis, income capitalisation approach, and cost approach, real estate agencies help clients determine the value of their property. Getting an accurate appraisal is crucial for setting the right price when selling or leasing a property, as well as for making informed investment decisions.
Property sales
One of the primary services offered by real estate agencies is facilitating property sales. This involves listing properties on the market, marketing them to potential buyers through various channels such as online platforms, print media, and networking, and negotiating sale terms on behalf of the seller. Real estate agents guide clients through the entire sales process, from property appraisal to closing the deal.
Property leasing
Real estate agencies assist property owners in leasing their residential or commercial properties to tenants. This involves marketing the property, screening potential tenants, preparing lease agreements, and handling rent collection and property maintenance issues. Whether it’s a long-term lease or short-term rental, real estate agents help landlords find suitable tenants and ensure smooth lease transactions.
Property management
Property management services offered by real estate agencies are aimed at easing the responsibilities of property owners and investors. Property managers handle day-to-day operations such as rent collection, tenant communication, property maintenance, and repairs. They act as intermediaries between rental providers and renters, ensuring that properties are well-maintained and generating optimal returns for the owners.
Do all real estate agencies offer all of these services?
It depends on the size and business focus of the agency. Not all real estate agencies will offer all of the above services — some may choose to specialise in selected services such as property management or property valuation due to their expertise in these areas.
For example, a smaller real estate agency may choose to focus on luxury property sales, providing a personalised experience for each of its clients looking to purchase or sell a property.
What are the most profitable services for real estate agencies?
The most profitable service by far is commercial property sales. As commercial entities often require large real estate locations that are centrally located for operations, the properties they are looking for can fetch prices that are well in the millions of dollars. Even with a low commission rate, the reward for a successful sale can be very lucrative. In the same way, residential property sales are also very lucrative, with many luxury properties across major cities fetching record prices in the tens of millions.
How does the commission structure work between agency and agent?
There are various commission structures that can be applied in an agency for agents that work in their employ. In most cases, a standard commission split will be used, usually 50/50 between the agent and the agency. Some agencies may also offer performance-based commission splits, which incentivise agents to achieve higher sales volumes or meet certain targets in order to receive a higher percentage of the commission. Agents under the real estate agency will only split the commission with the agency when a sale has been made.
Do real estate agencies have any loss leaders?
The concept of having loss leaders is not as direct as compared to other industries, but real estate agencies have a similar way of attracting clients by offering certain services at a loss. These include free home valuations, reduced commission rates, or free consultations and workshops.
Free home appraisals are one of the top ways to attract potential sellers who may be interested in how much they can receive if they sell their property. Similarly, reduced commission rates during limited time periods give buyers and sellers more incentive to take action and engage the services of the real estate agency.
Some agents also suggest a lower base commission coupled with an incentive commission where they will ask for a greater percentage of the sale price over an agreed price. This can be a great way for an agent and agency to be rewarded highly for a lucrative result.
Last but not least, free consultations and workshops help the real estate agency build its reputation and connections with potential clients while offering them valuable information.
Final thoughts
Real estate agencies are becoming a major avenue for real estate professionals to conduct business more efficiently (and more lucratively) in the property industry. To start a real estate agency, however, will require certain state certifications depending on where it will operate.
Regardless of where you are, Entry Education offers real estate courses for Australian professionals of all levels. Whether you’re looking to start your own real estate agency and need the right real estate accreditations, or want to work as an independent real estate agent, our courses can help you attain the appropriate certification.
