May 2023
Adam Hoeksema
The IRS publishes tax return data each year on the roughly 28,000,000 sole proprietorships in the U.S. We analyzed the 981,453 tax returns that were filed in the real estate industry to pull out some key statistics and insights to help our customers ensure that they are creating realistic financial projections for their real estate agency.
We hope that this data will be helpful for you as a “reality check” for your financial projections and real estate agency business planning process. We hope you create a forecast for your unique situation and plan, and then use this data to make sure your projections seem reasonable based on industry averages.
Here is what we will cover in this article:
Learn How to Use this Financial Data
If you are creating projections for your startup business, or you just want to see how your existing business stacks up to industry averages, you can take your income statement and compare key ratios and percentages for your business compared to this industry average data.
How many real estate agency businesses in the US are sole proprietorships
There are roughly 980,000 real estate agency businesses in the US organized as sole proprietorships. We specifically analyzed 981,453 real estate agency companies based on the 2019 IRS tax return data.
Average annual revenue for an real estate agency
The average annual revenue for all sole proprietorship real estate agency businesses in the U.S. was just $59,344.
This may differ depending on the size, location, and time in business for each real estate agency. It is not uncommon to see selling real estate as a part time or side job.
I think we need to remember that this tax return data includes all sole proprietors that categorize themselves in the “real estate agency”. Depending on location and size the potential revenue may vary. These businesses could be one person realtor businesses, or larger agencies with many realtors on staff; however, based on the average revenue of under $60,000 we suspect that the vast majority of these businesses are single realtors.
This underscores the importance of actually creating your own real estate agency projections based on your potential inventory and customers.
Average annual expenses for an real estate agency
The average annual expenses for all sole proprietorship real estate agency businesses in the U.S. was $34,249.
The average annual expenses for a real estate agency will be made up of the rent, legal fees, and advertising, but these all could vary depending on location and age of the business, so again let’s not focus too much on the specific dollar amounts here. What we can gain from this tax return data is an understanding of expenses and profits as a percentage of revenue rather than a specific dollar amount.
Average net profit margin for a real estate agency business
The average net profit margin for a real estate agency business was 42%.
If most of these businesses are just single realtors, they may not have any salary expenses for other employees, so the profit is essentially what the realtor can pay themselves as an owner.
How much can I make by owning a real estate agency business?
In order to calculate the earnings potential of a real estate agency you can take the following assumptions:
- # of transactions closed
- Average price per transaction
- % of commission
These assumptions will allow you to come up with a revenue forecast for your real estate agency. From there you can apply the 42% profit margin.
Top 10 expenses for a real estate agency business
Based on the tax returns of roughly 981,453 sole proprietors operating in the real estate agency industry, the following were the 9 largest business expenses as a percentage of revenue.
Average other business expenses for a real estate agency business
The average real estate agency business spent 11% of annual revenue on other business expenses.
This is somewhat of a catch all for different types of expenses within an administrative business. This can be related to different types of fees, licenses or memberships as well as different kinds of administrative expenses that do not fall into office expenses.
