Lew Sichelman
Do too many agents spoil the real estate pot? The Consumer Federation of America thinks so.
Roughly 1 million agents and brokers compete for the country’s 5 million to 6 million annual house sales, resulting in high commission rates and poor service, according to a recent report from the consumer group.
“A large majority of practicing real estate agents have recently received their license or work part-time,” said CFA Senior Fellow Stephen Brobeck. “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.”
Brobeck has produced a number of reports challenging the status quo of the brokerage business. Among other things, he has taken on referral fees, dual agents (who unfairly try to represent both buyer and seller in the same transaction) and the “uncoupling” of commissions (allowing buyers to negotiate their own fees).
But this latest report is based, at least in part, on the collected complaints of many experienced, full-time agents about the incompetence and inattention of others in the field.
“There is a lot of internal criticism,” Brokeck told me. “And it’s not just about money. It’s about the inability to complete deals.”
Bad Agents Take Big Share of Cash
The report states that because of the “surfeit of agents,” many brokers, and the agents who work under their auspices, feel both financial pressure and peer pressure to keep commission rates high.
Based on data compiled from three largely middle-income metro areas – Minneapolis; Albuquerque, New Mexico; and Jacksonville, Florida – Brobeck extrapolates that so-called marginal agents “drain” 25 percent to 30 percent of commission income away from better agents.
Full-timers who make their living selling real estate not only complain about the undue burdens placed on them by unprofessional agents, but they also realize that so-so agents deprive them of clients and needed revenue, he said. Consequently, rates must remain high for them to make it.
“Without 5%-6% rates, even fewer agents would survive financially in today’s marketplace,” the report said. “Ironically, relatively high rates attract new entrants into the industry, increasing competition for clients and reducing individual income for all.”
Of the estimated 2.5 million licensed agents in the United States, roughly 1 million practice in the residential sector. The National Association of Realtors claims 1.5 million members, but that number includes brokers, appraisers and other allied professionals.
According to NAR, agents don’t make a lot of money, at least relatively speaking. Based on 2021 figures, the median gross income of agents is $38,300. But the CFA said if the billions in annual commissions were divided equally among all, annual incomes would be something on the order of $67,000.
Not surprisingly, new entrants in the field earned less: under $10,000 if they had been in the business less than two years. They’d have to have another job, or perhaps a gainfully employed spouse, to get by – which suggests they can’t give real estate their full time and attention.
Impact Spreads Beyond Commissions
Of course, buyers and sellers don’t give a hoot what agents earn over a year’s time. They only care what they themselves are paying, and what they’re getting for their money. On this point, Brobeck said commissions remain high, at least in part, because of inexperienced – and often unskilled – agents.
His point is not new. A 2015 study commissioned by NAR reported that “the industry is saddled with a large number of part-time, untrained, unethical and/or incompetent agents.”
You and I may not see it, but agents sure do.
“Too many weekend warriors passing themselves off as experts … looking to make a fast buck,” the CFA report quotes one as saying.
“I’m running across more and more agents who are either new or don’t work real estate on a full-time basis,” said Colorado Realtor Mark Fuller in a website post, “and that often creates a lot of needless work [for] the more active agents like myself to essentially watch over the deal and make sure everything closes OK.”
Indeed, while the real estate business has never enjoyed a particularly great reputation, it is even worse among the agents who disdain their negligent and inept peers.
“Professional, hardworking agents increasingly understand that the ‘not-so-good’ agents are bringing the entire industry down,” read the 2015 NAR-commissioned report.
Yes, everybody has to start somewhere, even real estate agents. But the proliferation of people looking to obtain a license and rake in the dough is keeping commissions unnecessarily high, Brobeck contends.
Marginal agents deprive full-time professionals of enough clients to maintain their earnings, he explains. Had they more buyers and sellers to work with, perhaps their fees wouldn’t need to be as high.
Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.
