Why Real Estate Agents Are Not Seen As Valuable in the Eyes of the Consumer
Real estate agents are not seen as being valuable in the eyes of the real estate consumer because as a whole, we are not valuable! Today’s consumer has reason to be skeptical about real estate agents. Consumers think agents made too much money and it was too easy during the boom years.
I have been one who has believe for some time that the real estate profession will be fundamentally different when we come out on the other side of this real estate correction. I do not believe the leaders of the past will be the leaders in the future. The business models must change from being a broker/agent centric model to being a consumer driving model. And no, it’s not enough to just build a useful website to call yourself a consumer driven real estate brokerage.
The fact is most real estate agents and Realtors are nonperforming and they are gumming up the works. They won’t get out of the business and the big brokers and real estate boards won’t drive them out either. And don’t forget state governments whose Commerce Departments get to collect licensing fees…and there is the entire professional education establishment who gets paid to keep all these agents educated (30 hours every 2 years) even if these agents don’t sell anything! It’s not in their economic interest of the big brokers, the real estate boards, the state governments or the professional education establishment to drive agents out of the business.
For example, the Realtor boards typically charge $350-$400 per agent for membership. The various MLS’s also charge about $350 per year per agent. It’s much better to have 18,000 subscribers even if 90% of them are essentially nonperforming. They still pay their dues. The big brokers benefit because they have commission splits of 50/50 for newer agents or those who don’t do much sales production. Most don’t make it past the annual $30,000 – $40,000 they need to earn to achieve a bigger commission split. The turnover is exceptionally high in this industry. I’ve heard numbers somewhere between 50-80% each year. Why would consumers trust us?  Can you imagine if attorneys, accountants or doctors had that kind of turnover? Granted, we don’t require an extra 3-4 years of schooling, but there are definite steps that should be put in place to massively thin the herd in my opinion.
According to John Tuccillo, former National Association of Realtors chief economist, who wrote an article for REBAC‘s November/December magazine (Real Estate Buyers Agency Council – of which I am a member) he stated that:
Even in the best years of the boom, the average Realtor was making only about $30,000, and that was before expenses and taxes. Given the incomes being earned by the top and even very good producers, it’s likely that more than half of the membership of the National Association of Realtors were making nothing from marketing real estate.
So you end up with the consumer vs. Big Real Estate (big brokers, boards of Realtors, Commerce Departments, professional education establishment).  But here’s the issue…it is now a consumer driven market and everything associated with Big Real Estate is going to need to change whether they like it or not! As President Elect, Barack Obama said in his campaign, “Change is coming!”
It’s time to let the professionals sell the real estate and the rest should either go away or work under the direction of an experienced and productive agent. This will be significantly better for the consumer. It’s time for all these other agents to go away who are desperate to make a sale and therefore offer a lower commission rate. Many buyers and sellers think this is a good thing because they believe they are saving a few dollars and they had it so much commission discussion in the media over the past couple of years. The value a good agent brings to the table is worth much more than a 1% commission reduction. The fact is, in a fast market, it may not have made much of a difference frankly whether you paid 5,6,or7% to sell your home. Today’s market is different.
Which brings me to some analysis I’ve done based upon some estimated numbers of agents in the Twin Cities and the overall transaction volume. I don’t have the exact numbers, and I am certainly willing to correct these if someone finds errors in my calculations, but it’s my understanding that the way the real estate business is being segmented is that the top 10% of agents are doing about 90% of the business. With that as the basis for this analysis, it’s important to consider who you are going to hire when it comes to buying and selling your homes. (Note, even within this top 10% of agents, there are several REO agents (those who specialize in bank owned property) who are selling between 300-500 homes this year).
The charts below provide the following estimates for 2008:
- 18,000 agents approximately in the Twin Cities
- 76,000 transaction sides
- Top 10% of agents closed 38 transaction sides
- Bottom 90% of agents closed 1/2 of 1 transaction on average
- Top 10% of agents closed $9.1 million in transaction volume
- Bottom 90% of agents closed $113,000 in transaction volume
(To enlarge any of the charts below, just click on them)
It used to be common practice a year or two ago that buyers and sellers would hire their brother/sister, cousin or friend to help them buy and/or sell a home. That is increasingly less common today unless that brother/sister, cousin or friend really knows what they are doing. If you’re going to sell your half million home today, why would you have an inexperienced or non-productive agent represent your interests in this marketplace? Poor listing and purchasing strategies are costing buyers and sellers between 5-20%. I see it all the time. And yet, you’re willing to risk a very expensive, leveraged asset to save a point or two? It’s short sighted and I would ask you to reconsider if you’re thinking that way.
Good agents bring significantly greater value to the transaction today than the 6-7% they may charge. If you don’t think so, then perhaps you’re not talking with the highly productive and valuable agents who are out there today. Given the numbers that about 90% are not productive, it’s probably likely you’re view of agents is skewed by the unproductive and low value agents pervasive in today’s market.
The market is changing and I believe the consumers will continue to seek out highly valuable, highly competent, highly productive professionals to help them with their increasingly complicated transactions in this market. It’s time for the vast majority of agents to go find something else to do.
