More work, less revenue plague regional realty firms
October 31, 2011
RENO, Nev. and#8212; Everyone in the residential real estate business in northern Nevada continues to run harder just to stay even.
As the number of sales of existing homes continues to rise, some of the companies that support the real estate business and#8212; lenders, title companies and the like and#8212; are beginning to slowly add staff.
They’re cautious about hiring, however, because falling home prices grind away at the profit margins of companies that rely on commissions that are established as a percentage of the selling price.
A few days ago, the Reno-Sparks Association of Realtors reported that 1,611 transactions involving the sales of single-family homes closed in the region during the third quarter.
That flow of transactions is 22 percent higher than a year ago, and 10 percent higher than the mid-summer figure.
Great news for realty-related companies, right?
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Not once a 14 percent decline in median prices from a year earlier is figured in.
In this year’s third quarter, the 1,611 home sales at a median price of $151,000 translate into a total of residential resale business of about $243.3 million in Reno and Sparks.
That compares with a total market of about $231 million in the third quarter of last year, when the region saw 1,321 sales at a median price of $175,000.
Put another way, the market has grown by only 5 percent in dollars at the same that it grew 22 percent in transaction volume.
But it takes just as much work for a real estate agent, lender, title company and others to close a $151,000 deal as a $350,000 deal and#8212; maybe even more work.
and#8220;Our closings today take about three times the work of a traditional re-sale,and#8221; says Sylvia Smith, president of Western Title Co. in Reno.
Complicated short sales or sales of bank-owned homes require substantial amounts of work, and sometimes fall through before they generate any revenue for the title company.
But with the average revenue per order running below year-earlier figures, Smith hesitates to staff up.
Jim Lyon, president of First Centennial Title Co. in Reno, says his firm is slowly hiring back some of the staff members it laid off when it was forced to cut its workforce to 60 from 150 before the downturn began.
But he says uncertainty about future sales volumes deters the firm from moving more quickly, especially because the effects of state and federal initiatives to aid homeowners are unpredictable.
Mortgage lenders, too, feel the pinch from higher workloads that bring lower revenues.
Nick Serrano, vice president of sales for Greater Nevada Mortgage Services, says folks in the industry commonly swap stories about how they handled 10 transactions that, all together, didn’t total $1 million.
Greater Nevada Mortgage Services, which has aggressively been looking to build market share by emphasizing that it does business with borrowers who aren’t necessarily members of its parent Greater Nevada Credit Union, is beginning to rebuild its staff.
The company has three spots open in its Reno office, and another in the Fallon-Fernley area.
But Serrano notes that the company isn’t building its staff as quickly as workflow increases.
and#8220;We’re learning to be more efficient and smarter about how we do things,and#8221; he says.
Pam Robinson, who manages a newly opened Reno branch of National Residential Mortgage, says the company added an operations specialist to deal with growing volumes of paperwork.
But she notes that lenders continue to face challenges as falling home values pressure their revenues.
Real estate brokerages, meanwhile, are taking a variety of strategies to overcome the need to run faster just to stay even.
Chase International, which operates sales offices in Reno, Truckee and around Lake Tahoe, has more than tripled its sales staff since 2006, says Craig King, the company’s chief operating officer.
The company recognized early that sales prices were declining, King says, and it recognized that it would need to increase the volume of transactions it handled to keep revenues from sliding.
And the best way to reach that goal, Chase International decided, was to increase the number of sales agents whose relationships bring business through the door.
At the same time, King says Chase International has been investing heavily in training to improve the efficiency of those agents, training that’s especially important when most transactions are far more complicated than they were in the past.
Dickson Realty, meanwhile, has added new agents only cautiously, says President Nancy Fennell.
She says the company’s agents and support staff has grown more efficient in handling short sales and sales of bank-owned properties. Banks, too, have gotten more efficient, which allows agents to handle a larger volume of transactions.
Marketwide, the number of Realtors has remained unchanged and#8212; hovering right around 1,900 and#8212; since early 2010, the Reno-Sparks Association of Realtors says.