‘Marginal agents’ with fewer sales now claim quarter of commissions

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There are “too many real estate agents for too few home sales” and that’s costing both agents and consumers, according to a new study from nonprofit watchdog Consumer Federation of America released Monday.

CFA’s report, “A Surfeit of Real Estate Agents: Industry and Consumer Impacts,” noted that more than 1.5 million residential agents compete to sell 5 to 6 million homes annually nationwide.

The study also looked at home sales in three largely middle-class cities – Jacksonville, Florida; Minneapolis, Minnesota; and Albuquerque, New Mexico – and found that agents with five or fewer sales a year took in an estimated 25-30 percent of commission income in those markets.

That these “marginal agents” collect such a significant chunk of overall commissions results in wasted time and money for both agents and consumers, according to the report.

“Industry experts have noted that this surfeit of agents creates economic inefficiencies, deprives full-time agents of needed income, frustrates both consumers and experienced agents who must deal with inexperienced agents, forces agents to spend inordinate time and money acquiring new customers, reinforces relatively high and uniform commission rates, and damages the reputation of the industry,” the report said.

“It raises questions as to whether the industry should make a greater effort to address these issues, primarily by ensuring that new agents have greater commitment and competence.”

This is not the first report to point out the issue of agent professionalism. In 2015, the National Association of Realtors commissioned a now-famous “DANGER Report” that detailed 50 threats, risks, and challenges the real estate industry faced. The No. 1  danger was “Masses of marginal agents destroy reputation.” That report bluntly stated, “The real estate industry is saddled with a large number of part-time, untrained, unethical and/or incompetent agents. This knowledge gap threatens the credibility of the industry.” An Inman survey later that year revealed that respondents considered “low-quality agents” the industry’s biggest challenge.

CFA’s latest report stressed that real estate is essentially a zero-sum game, so as the number of agents rises, how much they make on average individually declines.

“Total homes sold, and related aggregate commission income, appears largely unrelated to the number of licensed agents,” the report said.

“Thus, the larger the number of agents, the lower the average annual compensation for each.”

The majority of agents don’t work full-time (a median 30 hours) and make a median gross income of $38,300, the report said, citing the National Association of Realtors’ 2022 Member Profile. The numbers are higher for brokers; median gross income for all brokers and associate brokers came in at $90,000.

Steve Brobeck

“A large majority of practicing real estate agents have recently received their license or work part-time,” said Stephen Brobeck, a senior fellow at CFA and the report’s author, in a statement. “These agents usually charge the same commission rates as experienced, full-time agents yet in general offer worse service and deprive experienced agents of needed clients.”

The study looked at 500 consecutive sales (1,000 sides) each in Minneapolis in early 2021, in Jacksonville in summer 2021, and in Albuquerque in early 2022, using multiple listing service data provided by two real estate brokers. Most agent sales data came from Realtor.com and was checked or supplemented with other sources, including Zillow agent profiles, HomeLight, and individual agent websites, the report said.

In Minneapolis, CFA was able to identify 956 of the 1,000 sides and 267 of the sides (27.9 percent) were represented by agents with five or fewer sides. In Albuquerque, CFA identified 963 of the 1,000 sides and 269 of the sides (27.5 percent) were represented by these “marginal” agents. In Jacksonville, CFA identified 953 of the 1,000 sides and 324 sides (34 percent) were represented by such agents.

The study also looked at what share of home sales marginal agents sold by price range and found that they were as likely, or nearly as likely, to sell high-priced homes as lower-priced ones.

Source: CFA

“Before computing these percentages, we had assumed that marginal agents with few sales would be far more likely to sell lower-priced homes and least likely to sell the highest-priced properties because active agents would be more effective in securing clients for higher-priced homes and least interested in selling lower-priced ones,” the report said.

“However, this assumption proved to be largely false. Marginal agents were as likely or almost as likely to sell homes in all price categories.

“Given these numbers, we estimate that marginal agents in these three largely middle-income areas combined received 25-30 percent of all commission-related income.”

The report emphasizes that the glut of agents puts pressure on agents and brokers to support and charge relatively high commission rates.

“A majority of all real estate licensees are inactive or part-time with commission-related income that, by itself, is not sufficient to support them financially,” the report said.

“Yet, because so many agents look for opportunities to sell properties, most full-time agents are unable to secure enough clients to provide commission-related income that is at or above the national median household income of around $70,000.”

If typical overall commissions dipped below their current 5-6 percent range, even fewer agents would survive financially, according to Brobeck.

“Ironically, relatively high rates attract new entrants into the industry, increasing competition for clients and reducing individual income for all,” he said.

CFA has previously called for an outright ban on sellers offering buyer broker commissions, after releasing a report finding that the vast majority of commissions are identical or nearly identical in 35 U.S. cities.

“Strong industry opposition to commission uncoupling, which is perceived to and likely would result in more fee competition, may reflect in part the high proportion of agents to home sales,” CFA’s latest report said.

CFA said it planned to release another, complementary report in the future that “will explain how easy it is for many people to obtain a real estate license but how difficult it is for most licensees to learn how to succeed as Realtors. This report will also offer suggestions as to how the industry could discourage unqualified and insufficiently committed people from obtaining a license yet also make it easier for capable, hard-working licensees to succeed.”

That report will look at whether the industry should have more stringent entry requirements and required mentoring of new agents, CFA said.

In the meantime, Brobeck advised consumers to not only consult friends and family to find a competent agent, but also look for recent sales information and detailed customer comments about agents on Zillow and Realtor.com.

NAR did not respond to a request for comment.

Email Andrea V. Brambila.

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