DataDigest: Study shows agents are aplenty, most with few or no sales

Key Takeaways:

– A new study by the Consumer Federation of America suggests that a significant portion of agents in the U.S. sell at most five homes in a year.
– On average, 70% of agents sold five or fewer homes in the past year, and 49% sold only one or no homes.
– The study’s findings contradict the National Association of Realtors’ suggestion that the median agent sells 12 homes per year.
– Many agents have other full-time jobs and view real estate as a part-time industry.
– The top 20% of agents are responsible for 80-90% of transactions.
– The low barriers to entry make it easy to become a licensed agent, leading to a wide gap in knowledge and competency.
– Companies continue to recruit new agents due to high turnover rates and the potential for new clients and fee revenue.
– Companies often have low hiring standards and underinvest in the education and professionalization of their workforce.
– Potential solutions include mandating broker supervision of inexperienced agents, mandating post-licensing education, and raising standards for earning Realtor status.
– Lawsuits over commission structures could also impact the appeal of entering the residential real estate industry.

HousingWire:

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.

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Property Chomp’s Take:

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A recent study conducted by the Consumer Federation of America (CFA) sheds light on the real estate industry and the role of agents. The study reveals that a significant number of agents in the United States sell very few homes, with most of them selling no more than five homes in a year. The study analyzed the sales data of 2,000 agents from five major real estate firms across four geographic areas. It found that 70% of agents sold five or fewer homes in the past year, and 49% sold only one or no homes.

These findings contradict the National Association of Realtors’ (NAR) annual member survey, which suggests that the median agent sells around 12 homes per year. The study attributes this disparity to sample bias, as successful and full-time agents are more likely to respond to the survey than their unsuccessful or part-time counterparts. The median agent in the CFA study sold only two homes per year, leading the study’s author to conclude that the residential real estate industry is primarily a part-time industry.

Interestingly, many of the agents in the study had other full-time jobs, such as teaching, working in government, serving in restaurants, or being employed in associated industries like mortgage lending and real estate law. This suggests that a large number of agents view real estate sales as a supplementary or occasional source of income.

Other analysts have also observed that a small percentage of agents are responsible for the majority of transactions, with the top 20% of agents accounting for 80-90% of sales. This concentration of sales in a select group further highlights the challenges faced by the majority of agents who struggle to make a significant number of sales.

The study raises concerns about the lack of barriers to entry in the real estate industry. Becoming a licensed agent requires minimal qualifications, with most states mandating applicants to be at least 18 years old, pass an educational course, and pass a state licensing exam. The study argues that the low entry requirements contribute to a significant knowledge and competency gap among agents, leading to a disparity in the quality of service provided to clients.

Despite the abundance of agents, many companies continue to actively recruit new ones. The study suggests that this is due to high turnover rates and the potential for new agents to bring in new clients. However, the study also highlights that companies often have low hiring standards and underinvest in the training and professional development of their agents.

To address these issues, the study proposes several potential solutions. State legislatures could mandate broker supervision of inexperienced agents and require post-licensing education. Regulators could also take action on complaints regarding inadequate training and supervision. The NAR could raise the standards required to earn Realtor status, and companies could prioritize hiring full-time agents and brokers over part-time ones.

In conclusion, the study reveals that a significant number of real estate agents sell very few homes, with the majority relying on residential sales as a supplementary or occasional source of income. The findings raise concerns about the lack of barriers to entry in the industry and the need for improved training and professionalization of agents. It remains to be seen how the industry will address these challenges and ensure a higher standard of service for clients.

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