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Real Estate Agent Bubble

Eagle ManEagle Man
edited March 2007 in Seattle Real Estate
I've been lurking for months. Some of what I read here I buy in to, some not. I saw an article on an eastside blog today that I thought migh stimulate conversation. It's about a real estate agent bubble. The article is on http://www.425realty.com

Comments

  • synthetiksynthetik
    I think maybe it'll stimulate us to buy some real estate from you...
  • Eagle ManEagle Man
    wtf? just how much ya gonna give me for my one bedroom condo? i sense a flipping op.
  • AlanAlan
    With that many agents prices have to go up to support all of those incomes. If some of the agents start quitting then prices might drop. If you own a house you better use an agent to trade up now or else all of your equity might go down the tube.
  • Eagle ManEagle Man
    Alan, I don't think the market cares whether RE agents get paid or not. My sister has a RE agent friend who's getting out after 5 years. Says she can't make it.
  • JD@PreviewJD@Preview
    There *are* too many agents and it's not good for consumers. The majority of new agents don't last long enough to get through their first license renewal. In the meantime these new agents may do one or two transactions with a friend or family member who feels obligated to use them. They don't get enough practice in the art and science of managing a transaction to ever get good at it and they don't make enough money to pay for the self marketing neccesary to stay alive. They take on a job with a paycheck so they can do real estate and consequently are often unavailable when the agent on the other side of the transaction needs something done. They start falling down on their due diligence and fiduciary responsibilities in ways like "buying" listings when the comps clearly won't support the exorbitant price. The way agents are paid and the way the industry (brokers, NAR and the MLS) makes money compounds the problem. Agents pay half their side of the commission to their broker until a total contribution threshold, usually around $23,000/yr, is reached. Assuming an average $360,000 transaction @ 6% total commission it takes a little more than 4 transactions to make threshold and start getting the full 3%. The majority of agents don't make threshold...ever. From the "industry" standpoint lots of new agents barely making threshold is a *good* thing. Better to have 20 agents running a finite pool of say 100 transactions a year than 5 experienced agents doing 20 a year and making a decent living. The excess of rookies makes the broker nearly $500,000 while experienced agents only had to cough up $115,000. All are paying around $1200/yr in NAR dues, MLS fees and the cost of continuing education. Now, a good agent working full time should be able to manage 4 transactions a month which translates out to about $500,000 year gross income at the average $360,000 @6% total commission. I can't speak for anyone else but if I didn't have to spend a boatload of cash fighting 26,000 agents for 110,000 listings I could easily justify giving the kind of full service expertise I'm proud to provide now for a much lower commission. But wait! The agent you negotiate with isn't the one who has the authority to make that call and few full service brokerages allow their agents to write up a listing for less than 6%.

    A few changes at the state level could make it better for the consumers and the folks in the industry that do the real work, agents. First, raise the requirements for a license. An 18 year without even a GED and only 60 clock hours of RE training shouldn't be allowed to be a fiduciary on the largest transaction most of us make. Your massage therapist had to take 2000 clock hours just to make $60 on your backrub. If the purpose of the DOL is to provide consumer protection let 'em do it by limiting how many sharks get in the tank. Second, considering the level of responsibility agents have they are the most undersupervised group profession around. While conventional business wisdom suggests a supervisor for every 15 employees it's common to see 70 to 100+ agents under one managing broker. The Real Estate Commission and the DOL should require more supervising brokers in larger offices. About NAR; since the profession is regulated by the state, I feel that the practice of brokerages requiring all agents to join and pay dues should be abolished. The "Board" is not terribly responsive to the needs of the people who pay the freight while the brokers (remember, the "industry") reap the benefits. I could go on but I'll save it for later.
  • Eagle ManEagle Man
    No wonder my sister's friend wants to get out of the biz. Looks her bosses and top agents are the only ones making it. The example between the RE agent and massage therapist was interesting......
  • JD@PreviewJD@Preview
    Eagle Man wrote:
    No wonder my sister's friend wants to get out of the biz. Looks her bosses and top agents are the only ones making it. The example between the RE agent and massage therapist was interesting......

    The sad part is that we're losing some competent, decent agents while what's left over is the barracudas, the part-time "hobby agents" and the never ending stream of newbies that get sucked in by the possibility of outrageous wealth. I love most parts of this work. Facilitating the process of putting people in homes is very satisfying. The disproportionate amount of work and consciousness required to get more clients is just one disappointment.
  • EconEEconE
    No...the GOOD part is that we are losing agents. As the price of RE skyrocketed the agents transaction process stayed pretty much the same meaning they basically received raises that were in line with the % increase in RE.

    I hope that there is a new way to buy real estate in the future and that the only use an agent will be is if I need them to get something off the upper shelf for me from Walmart.
  • JD@PreviewJD@Preview
    You won't get any argument from me that fewer agents is a GOOD thing but I reiterate that it's *which* agents leaving that is sad. Fewer agents with a greater proportion of rookies, part-timers and bad actors could be worse. As for a better way to buying real estate goes; as long as a purchase and sale agreement contains 20+ pages of multiple contingencies and timelines, as long as 80% of real estate litigation involves *unrepresented* buyers and sellers and as long as buyers and sellers are too emotionally attached to their transaction to market and negotiate effectively, there will always be agents. Perhaps you're one of the very few that can get through a FSBO without wishing he hadn't represented himself. Personally I think the cliche that says "He who acts as his own attorney has a fool for a client" is analogous to real estate. FWIW, I'm damn good at what I do and I wouldn't dream of selling my own home. I've been the buyer's agent on enough owner/agent and FSBO sales to know that I was clearly the one in control simply because the owner/agent was too close to the deal to be very good at handling it. Some companies won't even allow their agents to list their own property because the E&O insurance won't cover it. That fact alone should give you pause for thought about the wisdom of selling you're own home. No problem, I *love* FSBO's. You, from a consumers standpoint can have a better experience by learning what kind of questions to ask before engaging the services of an agent. You can tell your elected officials that you want fewer licensees with higher credentials in the business. FInally, you and your ilk need to realize that it's "the industry" (see earlier posts) causing your problem, not the agents. Believe me, if I didn't have to bust my tush just getting the next client I'd be happy to provide the excellent service that I won't compromise on for a fraction of the industry's traditional 6%
  • JD@PreviewJD@Preview
    JD@Preview wrote:
    <snip>Believe me, if I didn't have to bust my tush just getting the next client I'd be happy to provide the excellent service that I won't compromise on for a fraction of the industry's traditional 6%

    Assuming my broker would allow it. I'll tell you what, you work to make the changes in the law and I'll open a full service brokerage that works for a more reasonable commission. Fair enough?
  • Eagle ManEagle Man
    EconE wrote:
    No...the GOOD part is that we are losing agents. As the price of RE skyrocketed the agents transaction process stayed pretty much the same meaning they basically received raises that were in line with the % increase in RE.

    Where do you see this?? The article says we're gaining agents!

    JD, you're in the industry. I"m sure your right. Like everything, I"m sure there is good and there are bad.
  • JD@PreviewJD@Preview
    We're actually starting to see a slight net decrease in agents. Experienced agents are burning out while "the industry" suckers the rookies into enrolling in online real estate courses without telling them the reality of how an agent gets paid. The part-timers and "hobby" agents who have a spouse with a "real" job stay in because they don't have to get good at it to survive. How many of you have driven down the street and seen the marquis of a real estate office with the words; "need 3 agents, will train" especially in the middle of the slowest time of year in the business? They'll train you alright, after you pay for the Rockwell class. More than once I've seen the look of shock on a newly minted licensee's face when he finally passes the test and gets his/her license activated when the answer to "When's payday?" isn't quite what he was prepared for.
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