Most agents seldom sell homes, according to a new study published by the Consumer Federation of America last week.
The study, CFA’s third of three on this topic, suggests that a significant portion of agents in the U.S. sell at most five homes in a year. It relies on examinations of agents’ sales for five major real estate firms in each of four geographic areas; out of a sample of 2,000 agents, 100 were selected randomly from each firm in each area.
On average for all areas studied, 70% of agents sold five or fewer homes in the past year, and 49% sold only one or no homes.
The study’s findings are far below the 12 sales per year for the median agent suggested by the National Association of Realtors’ annual member survey, which the study attributes to sample bias for the survey – successful and full-time agents are more likely to respond to the survey than unsuccessful or part-time agents.
The median agent in the study’s result, by contrast, had two sales per year, leading the study’s author, CFA senior fellow Stephen Brobeck, to conclude, “the residential real estate industry is clearly a part-time industry.”
Many of the individual agents in the study had other full-time jobs as “teachers, government workers, restaurant servers, commercial employees, and a large number in associated industries – mortgage lending, real estate appraisal, commercial and residential investment, and the practice of real estate law.”
Other analysts have similarly concluded that the top 20% of agents are responsible for 80-90% of transactions.
To Brobeck, the fact that so many agents rely on residential sales for occasional, marginal or supplemental income is a problem. These “sporadic sales… drain income from those struggling agents, most of whom are women, who work full-time or nearly full-time but sell only a half-dozen to a dozen properties each year.”
Barriers to entry (or lack thereof)
In the second part of his three-part study, published last October, Brobeck argues it is too easy to become a licensed agent.
On this, NAR has previously reached the same conclusion. A 2015 NAR study noted that becoming a licensed agent takes on average 70 hours, which is 302 hours less than it takes to become a cosmetologist.
“The knowledge and competency gap from the most to the least is very large, due to the low barriers to entry, low continuing education requirements, and the lure of quickly making big dollars,” the NAR study reads. “… The delta between great real estate service and poor real estate service has simply become too large, due to the unacceptably low entry requirements to become a real estate agent.”
To become an agent, most states require an applicant be at least 18 years old, have no criminal conviction that affects ability to practice as an agent, pass an educational course, pass a state licensing exam, receive sponsorship from a broker and receive a state license, according to Brobeck’s CFA study.
He notes there is significant variance in requirements from state to state. Required course hours range from 40 in several states to 180 in Texas, while expenses range from $338 in Michigan to $1,225 in South Dakota.
Recruiting agents
Despite the abundance of agents, many companies still actively recruit new ones, according to the CFA study. Companies do this due to high turnover rates and to bring in new clients who come with new agents, the study argues.
Additionally, new agents generate fee revenue, the study notes.
Given these factors, companies often have low hiring standards and underinvest time and resources into the continuing education or professionalization of their existing workforce, Brobeck contends.
“Yet despite this agent glut, many large companies keep recruiting new agents, often regardless of agent qualifications,” he wrote. “They do so largely because of four factors – high agent turnover rate, new agent sales to friends and family members, fees paid by these agents, and limited liability for these agents since they are independent contractors.
“For these same reasons, many companies continue an association with agents even when the agents routinely sell only one or no properties a year. The surfeit of agents ensures that many will not be able to receive adequate personal training and mentorship.”
What to do about the glut of agents
Brobeck offers a few potential solutions:
- State legislatures could mandate broker supervision of inexperienced agents (Colorado, Illinois and Montana already do)
- State legislatures could mandate post-licensing education
- Regulators could act on complaints of inadequate training and supervision
- NAR could raise the standards required to earn Realtor status (although not all agents are NAR members and several brokerages no longer mandate their agents become members)
- Companies could prioritize hiring full-time agents and brokers more than part-time ones
Although unmentioned in the CFA study, the outcomes of various lawsuits over commission structures could also dampen the appeal of entering the residential real estate space, depending on how compensation changes.
I agree with the observations made in this report. There is one significant point of view that was missed. The glut of agents is certainly driven by the factors listed, but the National Association of Realtors plays a critical role in this glut. They are one of the largest PAC organizations in the country. and rightly so. Homeownership in America is an important part of not just the American dream but financial stability. The topic of high rents, the shortage of housing, the cost of securing finance, etc. are all important issues. But when the Association is more concerned with the quantity of its members rather than the quality – the consumer ends up a victim. We need to increase the barrier to entry into real estate. We also need to increase the standards in which an agent becomes an Associate Broker and then again, when they become a Principal Broker. It’s just too darn easy! This question should be posed to every franchise owner. With the current number of agents you have now as Independent contractors, how many of them would you let go if they were forced to be employees? I am betting that most firms would let 45-60% of their agents go.