How Many Agents Does It Take…

Kristn.jpgGreg at the Blue Roof blog (Salt Lake City) in a recent post expressed his frustration with the proliferation of licensed real estate agents, and I couldn’t agree more. I’m all for free enterprise, but the ease with which one can obtain a saleperson’s license and the delusion of guaranteed riches promulgated by our many years of active resale activity has resulted in an industry which is bloated and teeming with less than stellar “professionals”. All too indicative of what our profession has become, I was at Home Depot a couple of months ago buying my client a washer and dryer (a story for another time), and the helpful appliance department guy points out what a coincidence it is that he too is a real estate agent. Coincidence? I think not. Show me someone who isn’t, and it is someone who is considering it.

According to First American Corporation, approximately 22,500 Realtors belong to Sandicor, my MLS. Now granted, many of these members are Broker members (who might not directly sell homes) or Appraisers, but remember that many real estate agents practicing in our County are not members of Sandicor (they operate independently or are from out-of-area). So, let’s assume that 22,500 is a conservative number for practicing agents in San Diego County. Within the past 12 months (according to Sandicor), a total of 22,685 homes have sold, representing 45,370 sides. On average, that means that each agent will sell about two homes a year. Clearly, that is not the case, as the top agents will sell many, many homes while others will sell one or none.

What this means is two things, in my opinion. We are headed for the ole cleansing process, which is a good thing. I don’t worry as much as some about the tarnished image our profession has suffered at the hands of too many, inexperienced agents flooding the industry. As the market continues to slow, there will be a natural attrition and the “fittest” will survive. Consumers will get wise and recognize the differences among licensees, and part-time or fair-weather licensees will realize that representing homebuyers and sellers consistently and well is hard work and a lot less lucrative than originally thought.

Which brings me to the second point. There seems to be a nearly-universal impression that Real Estate as a profession is easy and easy money. A San Diego Union Tribune article by Roger Showley published in June, 2005 (just one short year ago) parroted the sentiments of most, namely, that real estate agents are grossly overpaid. I for one would love to see this thesis revisited in the context of our current environment, but last summer at least, this was the argument: “Today, it takes commissions from just over two sales to nearly equal the median household income (for a family of four) of $63,400”. Yikes! Someone is sure botching my paychecks!  Obviously, the premise was that two median priced homes ($493,000 at the time) paying 6% commission would equal $59,160. Bear with me while I straighten out the “facts”. Commissions are not always (or even, mostly) 6%; I wish they were, but they are not. Assuming you are dealing with a 6% commission, half of that customarily goes to the side bringing the buyer and half stays on the listing side. Of one “side”, agents are most often required to split the commission with their Broker. Generally, all agents pay their Brokers an advertising or franchise fee of 6 to 7%. Additionally, they are required to split the remaining commission at a predetermined split level, usually based on the agent’s past production. So, it is reasonable to assume that the agent “keeps” an average of 75% of the remaining commission (which is much more generous than most new agents will experience). Now, those two median-priced sales will result in a total “gross” pay to the agent of $20,854. Next, business and marketing expenses are often 20 to 25% of an agent’s gross pay, so we will be generous and assume 20%, which leaves an income of $16,683. Oops – No employer-provided health care, so we need to deduct another $12,000 a year for a family of four, leaving us $4,683. Jeepers – It’s tax time (four times a year, if you are self-employed), and that agent has to pay self-employment tax in addition to ordinary income tax. Too bad he or she sold both those houses in the same month, because now they have to stress about cash flow for the next eleven months when they may not fair so well. You see, the agent only gets paid when an escrow closes. Of course, they haven’t had a real vacation or a weekend off in years, but the “job flexibilty” is fabulous, leaving plenty of free time for blogging. 🙂

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