Too many real estate agents comes with costs for consumers and the industry, report says

Does it matter that there are too many residential real estate agents? Yes, says a consumer group.

More than 1.5 million residential agents, including brokers, compete for home sales usually totaling 5 to 6 million annually.

The plethora of real estate agents comes with costs, according to a study by the Consumer Federation of America, that include:

• Economic inefficiencies including an excessive amount of time spent by agents finding clients.
• Relatively low incomes of many full-time agents.
• Frustration by these agents and by many consumers who deal with inexperienced agents.
• Reinforcement of relatively high and uniform commission rates.
• Damage to the reputation of the industry.

“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, a research, education and advocacy group. “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.”

In looking at home sales in three cities – Jacksonville, Florida; Minneapolis, Minnesota; and Albuquerque, New Mexico – the study found that marginal agents, with five or fewer sales a year, received an estimated 25-30 percent of commission income.  According to data collected by the industry from Realtors in 2021, the median net income of:

• All sales agents was $25,000.
• Sales agents with less than two years’ experience was $7,800.
• All brokers and associate brokers was $57,100.

The report includes complaints by many experienced, full-time agents of the incompetence and/or inattention of other agents that also harm consumers.  And it emphasizes that because of the excessive supply of agents, real estate agents and brokers feel financial and/or peer pressure to keep commission rates relatively high.

“Without 5-6 percent rates, even fewer agents would survive financially in today’s marketplace,” said Brobeck. “Ironically, relatively high rates attract new entrants into the industry, increasing competition for clients and reducing individual income for all.”

The report raises the question of whether the industry should make greater efforts to ensure the competence and commitment of new agents, he said.  Such efforts could include more stringent entry requirements and required mentoring of new agents.

The report caught my attention because I was thinking just the other day that it must be great to be a real estate agent these days with housing prices so high. Although I was familiar with the fact that Realtors don’t get paid until they sell a house, I didn’t realize that the median net incomes were so low.

The photo above shows new luxury homes in Orondo, Washington, being built on the farmland where I grew up, prime agricultural land along the Columbia River.

Comments

[Diane]

I had no idea! I even considered becoming a part-time agent thinking it would be a good second income. This article has helped me tuck that thought away!

[Carol Cassara]

Interesting points. I mean, basing commission on sales price leads to inequities across states, for sure.

[Laurie Stone]

Had no idea. It might also depend on where you live, but thought they made much more. There's also lots of competition.

[Rita]

At one point, I thought it would be a good way to make extra money to become a real estate agent. The results of the study were really surprising to me.

[Jennifer]

It's amazing how many people I know who went into real estate. For every one person that stuck with it and turned out to be a great agent with repeat sales, there were four to five who dropped out after a year or two. I don't think people realize how much work you have to do. People see it as a break from the 9 to 5. It is from the conventional 9-5 but a good real estate agent has to give up their weekends and many nights in order to show homes when it's convenient for the buyer. Not when it's convenient for the agent.