The evolving technological landscape, competition from nontraditional market participants and housing affordability continue to be among the biggest challenges facing real estate firms in the next two years, according to a report by the National Association of Realtors.

NAR's 2019 Profile of Real Estate Firms found that commercial real estate firms were more likely than residential firms to cite local or regional economic conditions as the biggest challenges, while residential firms were more likely to mention competition from non-traditional market participants and virtual firms.

The survey found that the vast majority of firms have an optimistic outlook for the industry's future growth. Although expectations have slightly decreased from last year's survey, firms remain confident and expect profits from real estate activities to increase or stay the same over the next year.

"Real estate firms continue to look optimistically toward the future, with a majority expecting profits to increase in the next two years. These trends are positive signs, particularly in our constantly evolving industry," said NAR President John Smaby, a second-generation REALTOR^® from Edina, Minnesota and broker at Edina Realty.

The report is based on a survey of firm executives who are members of NAR and provides insight into firm activity, the scope of benefits and education provided to agents and future market outlooks.

The report shows that almost 60 percent of firms expected profitability (net income) from all real estate activities to increase in the next year. Forty-four percent of firms expected competition from virtual firms to increase in the next year and 43 percent expected the same from non-traditional market participants.

"It is clear that the real estate industry is rapidly changing, and with that comes growing competition in the market," said NAR CEO Bob Goldberg. "NAR continues to stay ahead of the evolving trends in technology as we work with market disruptors to best serve our members and ensure they have the resources needed to be successful."                                                                        

Firms also predicted the effects different generations of homebuyers would have on the industry. Fifty-eight percent of firms were concerned with Millennials' ability to buy a home while 46 percent experienced similar heartburn with Millennials' view of homeownership.

Firms typically had 30 percent of their sales volume from past client referrals and 30 percent from repeat business from past clients. Fifty percent of current competition came from traditional brick and mortar large franchise firms. The most common benefit that firms offered to independent contractors, licensees, and agents was errors and omissions/liability insurance at 40 percent. Thirty-five percent of senior management received errors and omissions/liability insurance, 15 percent vacation/sick days, and 10 percent received health insurance.

That survey states that over 80 percent of real estate firms had a single office, typically with two full-time real estate licensees, down from three licensees in the 2017 report. Eighty-six percent of firms were independent non-franchised firms, 11 percent were independent franchised firms and 82 percent of firms specialized in residential brokerage. Thirty-two percent of brokers of record were CEOs, presidents or owners, and 64 percent were regional managers or regional vice presidents.

Firms with only one office had a median brokerage sales volume of $4.2 million in 2018 (down from $4.3 million in 2016), while firms with four or more offices had a median brokerage sales volume of $100 million in 2018 (down from $235.0 million in 2016). Thirteen percent of all firms had real estate teams, with a median of three people per team.

Real estate firms with one office had 18 real estate transaction sides in 2018 (down from 20 in 2016), while firms with four or more offices typically had 478 transaction sides (down from 550 in 2016). Firms usually received 30 percent of their sales volume from past client referrals and 30 percent from repeat business, while 50 percent of current competition came from traditional brick and mortar large franchise firms.