Greg 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. 
{ 13 comments… read them below or add one }
Greg Tracy
08.15.06 at 4:00 pm
Bravo!
It’s important for people to understand that, while we usually enjoy our work, being a Realtor is not the “easy money” it’s sometimes made out to be.
Factor in the emotional roller coaster and all-night counseling sessions that go along with selling a home for a divorced couple and the frustration of trying to coordinate the escrow process while the home you’re selling is third in line in a six-home line with each needing to align with the others for it all to work- and of course each family has their own emotional stress and frustrations they are “sharing” with you.
And the phone calls all night and on weekends, if you’re a good agent at least, and the thousands of miles put on your “luxury” car every year shuttling people around, delievering flyers and going to appointments.
Great post…
Kris Berg
08.15.06 at 4:46 pm
Your comments only scratch the surface of the things our jobs involve that people are, for the most part, unaware of. I will save my horror stories for another thread. And I forgot to add in my post that no one is making a retirement account contribution on my behalf.
Erin
08.16.06 at 3:05 pm
I’m always surprised at how many people who I would consider to be not very people-oriented think they can make it big in real estate. If you don’t know how to deal with people — and I mean all kinds of people — how can you expect to have satisfied buyers who will recommend you to their friends?
Kris Berg
08.16.06 at 3:07 pm
Great comment - Very enlightened. :)
Marilyn Capra
08.17.06 at 10:31 am
The strongest compliment I can pay Kris’ original post, is I wish I would have written it myself. Very succinct and REAL! I’d like to add the fact that anyone deciding to become a realtor must embrace and accept, even before entering the industry, that this is an independent self- employment industry in which they alone drive their success or failure. Kris is absolutely 100% on the money (sorry about the pun) that a realtor must endure a plethora of expenses, taxes and costs, but with that said, if the perception others hold about realtors is incorrect, in the end does it really matter? I believe what matters is if the “work” provides satisfaction to the realtor. The highs are very high and lows, which can come out of the blue, and be very low. It is extremely disappointing and disheartening to work with young first time buyers, initially excited submitting their offer, only to receive a counter offer that makes them head for the woods, temporarily scared away from their dream to own a home. The realtor has to walk a fine line to either help the first time buyer overcome their fear and if not successful, have developed a relationship with the client that when they’re ready to dip their toes again into the market, they will return as clients. Although it is perceived that all realtors make the “big bucks” when working with entry level buyers, the commission checks aren’t large, and then when all of the costs and time involved in the deal are factored in, a job as a checker in a local grocery store may appear more appealing; BUT the ebb and flow between the types of clients and the cost of their home purchase is no different than the reality of sales within any independent business. A good restaurateur treats the client who walks through their door for a cup of coffee and dessert the exact same way as the group office party entering to celebrate a company anniversary. The owner still has to pay the same amount of rent, utilities, staff, but quite obviously the amount of money they receive between the 2 clients is vastly different. If respect isn’t demonstrated to both types of clients, the coffee and dessert client may very well take their next big celebration to the restaurant down the street. Realtors cannot run their business only around the basis of the size of the commission check or based on the expense of doing business. Although it has been a constant cry, especially from me, that the industry is not regulated and there is a lack of professionalism demonstrated by peers and colleagues, such difference exist within all professions. It’s a fact a life, not everyone can be #1 or “the best.” Just like any profession, there will always be those who graduated first in their class, but many in the descending ranks down the totem pole can and do provide competent service. To succeed as a realtor, one cannot have thin skin. You have to be able to look past public perception and opinions, be willing to learn and gain knowledge, flow with the ups and downs of success or rejection, and enter the business aware it is a business and you’re responsible for expenses as well as the profits.
Kris Berg
08.17.06 at 11:12 am
Wow, Marilyn. Sounds like I struck a nerve. Reminds me of two of my favorite clients who, when buying a smaller home this past Spring (our third transaction together), apologized for being “small crumbs in my cookie jar” but assured me that they would be “big cookies” some day. No apology needed. When they stop ALL being big cookies, in our eyes at least, it is time to move on.
Nelson
08.17.06 at 3:59 pm
Kris -
Sure, in your profession there are many hardships and hurdles such as the nonexistent weekends and holidays, the absence of sponsored health care insurance, the endless and ungrateful negotiations, clients wound tighter than a watch, out of pocket advertising dollars, etc, etc.
But isn’t there a whole other side of the coin here of bennies and unsung perks that go along with the daily grind? I took a moment to reflect on my observations and thoughts and only thought it fair to submit these for your review.
What about the freedom and flexibility you have when hosting an open house when its pouring cats and dogs outside or people are watching the Chargers instead?
You have carte blanche to rummage through the pantry and look for the perfect snack that will help ease the pain when its only 1:30. Of course it goes without saying the refrigerator becomes an all you can eat smorgasbord. All of this at your fingertips without the possibility of anyone coming in while you’re unwrapping a Pop Tart. How sweet is that ! This will save oodles of time on your way home in that you won’t have to stop for dinner. Your loved ones will have to fend for themselves however. That, is a major plus in anyone’s favor. Let’s move on.
How about the gratis physical fitness that comes along with manhandling one of those “Open House” signs into the soft, velvety smooth soil of San Diego ? Watch your upper body and calf muscles go the distance as you sculpt yourself reminiscent of a Greek Goddess. Other than Medusa, this is something that you need to keep in mind when moaning about the split commission.
Ever consider all of the good things that can come your way when you have to stop by the Home Depot in Mira Mesa to pick up a spare key, a light bulb or a garage door opener for the absent minded client? Digest the beauty of multiple lanes of traffic coming and going as you catch the red light at the intersection of Westview Parkway and Mira Mesa Boulevard. Let your mind wander for the 8 minutes in which you have nothing to do until you see a green dot up above. You can buy tomorrow’s Union Tribune, have no choice but to share the teenagers excruciating bass and heart pounding beat of an artist that would make a sailor blush. If you’re really lucky, eye contact is always a treat as well. Help your fellow man by contributing to the triumvirate homeless monopoly that stand at attention on every median strip. Dig deep and forget about replacing the fliers which are waiting for you at the printers.
You blog reminds me of the guy who follow the elephants in the circus with the shovel and broom. He gets offered another job and says proudly “no thanks, and get out of show business.”
- Nelson
Steve Berg
08.17.06 at 7:10 pm
Nelson: Your diatribe just bursts with the wisdom and enlightenment of a buyer or seller who understands and appreciates the wonderful life of a listing agent. Do I know you??
Kris Berg
08.18.06 at 7:43 am
Nelson,
I don’t know whether to laugh or cry. You have managed to sum up in a mere 3000 words of poetic song the glamour that is real estate. And for the record, I have never eaten Pop Tarts at an open house but admit that, pre-Broadband days, I was guilty on occassion of patching into the neighbor’s unsecured wireless network to “fill my shopping cart” while passing the time. And I resent the circus reference. Circus people are seen as eccentrics on the fringe of society, people who must use flashy, slick promotional leaflets to promote their acts, transients who move from one location to another seeking a new audience to entertain and capitalize on before … oh wait… never mind.
Medusa
Peter
08.20.06 at 7:05 am
I think our business is very misunderstood…
Dan
08.20.06 at 4:01 pm
Great blog. Similar thread on a national basis is currently underway at RealBlogging.com. Check it out. The comments seen to follow a similar pattern. How many agents does this industry really need and do we have too many today?
Keith
08.24.06 at 9:45 am
Blah, blah, blah …..
I understand you reasoning about calls, weekends, etc.
But I see 2 things…
- write offs; can’t do this when you work at a “regular” job.
- also, lets say the median price of a home back in 1990 was $200,000 and today it’s $550,000. 3% back then would be $6000, and today, 3% would be $16,500. If I did my math right, this is a 175 % increase !!! Tell me one other profession (other than professional ball player) that’s had a 175% increase in 15 years. ALso, is my realtor providing me 175% more service - I don’t think so!
Kris Berg
08.24.06 at 10:36 am
Yes, I can “write off”, and what I am writing off is expenses - HUGE expenses that the guy at the “regular” job does not incur, but that I incur every day in advance of my paycheck that I may never see (seller decides not to sell, buyer decides not to buy). And while I agree that home prices have resulted in bigger paychecks, please keep in mind that as prices have risen, commissions have declined as a percentage (by a bunch). Also, costs of business have risen dramatically. I do not argue that it is a profession that has advantages, monetary and otherwise. It is NOT, however, as simple or lucrative as you suggest.