The verdict is in — the old way of doing business is over. Join us at Inman Connect New York Jan. 23-25, when together we’ll conquer today’s market challenges and prepare for tomorrow’s opportunities. Defy the market and bet big on your future.

The vast majority of real estate agents sold five or fewer homes in the past year and about half sold either zero homes or only one, according to a new study from nonprofit watchdog Consumer Federation of America released Wednesday.

The report, A Surfeit of Real Estate Agents 3: Abundant Jobs, Inadequate Mentorship, and Few Sales, is the third to highlight what CFA calls a “glut” of more than 1.5 million agents nationwide selling between 5 million and 6 million homes per year. This surplus results in most agents being inexperienced and “unable to sustain themselves solely on sales commissions, contributing to widespread incompetence and pressure to maintain high commission rates,” according to CFA.

Steve Brobeck

“Consumers do not benefit from the failure of companies to adequately train and oversee new agents,” Stephen Brobeck, a CFA senior fellow and the report’s author, said in a statement. “Incompetent agents impose costs on consumers ranging from missed sales opportunities to disadvantageous sale prices to problematic homes.”

The nonprofit said the ease of obtaining a real estate license exacerbates the problem, pointing out that 26 states, including Washington D.C., don’t require a high school degree to become a real estate agent and the median expense to obtain a license is $600. CFA’s second report on the agent surplus covered the industry’s low barrier to entry while the first covered the cost to the industry.

‘A part-time industry’

Overall, the study sample for the third report included 2,000 agents in 20 major brokerages. Specifically, the study examined the annual number of home sales of 100 randomly selected agents working for each of five major brokerages in four urban areas — Central Pennsylvania; Orlando, Florida;  Tucson, Arizona; and Minneapolis, Minnesota. The research was conducted in October and November.

According to the data, 49 percent of the agents in those four areas sold either zero homes or only one in the previous year and 70 percent sold five or fewer homes. The median number of sales was two. More than a third of the agents, 37 percent, didn’t sell a single home, Brobeck told Inman.

“The residential real estate industry is truly a part-time industry with most agents working sporadically and holding another job, often full-time,” Brobeck said.

“There is no other financial services industry or profession where part-time, marginal workers are so ubiquitous.”

The report emphasized that these “marginal” agents earn only a small share of their household income from real estate sales, but end up “drain[ing] income from those struggling agents, most of whom are women, who work full-time or nearly full-time but sell only a half-dozen to a dozen properties each year. In our sample of 2000 agents, 246 (12.3 percent) sold six to ten properties the previous year. Of this number, 137 (55.7 percent) were women.”

More Realtors means fewer sales per agent

The percentages varied widely by brokerage and location. The share of agents with fewer sales rose the higher the number of Realtors in the area compared to the population, the report said, noting that there was one Realtor for every 102 people in Florida, 136 in Arizona, 260 in Minnesota, and 341 in Pennsylvania.

“Areas with the highest ratio of agents to population and inventory had the highest percentages of agents with five or fewer sales,” the report said.

“For example, Coldwell Banker’s 0-1 sale percentages are 56 percent in Orlando, 48 percent in Tucson, 37 percent in Minneapolis, and 36 percent in Central Pennsylvania.”

Coldwell Banker and Keller Williams brokerages were included in each of the four areas.

In Orlando, 56 percent of Coldwell Banker agents sold either zero or only one home in the previous year while 75 percent sold five homes or less. But in Central Pennsylvania, 36 percent of Coldwell Banker agents sold either zero or only one home in the previous year while 59 percent sold five homes or less.

At the same time, in Central Pennsylvania, 67 percent of Keller Williams agents sold either zero or only one home in the previous year while 76 percent sold five homes or less. In Minneapolis, 45 percent of Keller Williams agents sold either zero or only one home in the previous year while 63 percent sold five homes or less.

Source: CFA

In the two markets where a RE/MAX firm was among the major brokerages, a much smaller share of RE/MAX agents had fewer sales. For example, in Minneapolis, 43 percent had five or fewer sales and 19 percent had one or fewer sales.

“RE/MAX is well known for its emphasis on recruiting the most productive agents from other firms,” the CFA report said.

Where the data came from

The sales data for the previous year came from Realtor.com, Zillow, Homes.com, and individual agent websites, Brobeck told Inman.

“When these sources reported different numbers, I used the highest total,” he said.

When asked about how sales by agent teams were handled in the study, Brobeck admitted that data was “sometimes problematic.” In cases where there was sales data for each team member, the sales were attributed to those team members. In cases where there was a relatively large number of sales for acknowledged sales agents, he divided the total sales by the number of agents, giving each agent an equal share of sales, he said.

“In still other instances, there was a dominant leader who did not recognize team members (many of whom probably did admin work and in all likelihood did not share in commissions), in which case I credited these leaders with all sales,” Brobeck added. “But when things were unclear, I omitted the agent from the sample.”

According to Brobeck, of the 2,000 agents in his sample, only 20 had more than 50 sales, and of that number, only seven had more than 100 sales, all of which he credited to those agents.

‘Indiscriminate’ hiring and inadequate training

The report stresses that major brokerages continue to recruit new agents “indiscriminately” despite the oversupply due to high agent turnover, to tap into the new agents’ networks for clients, and to benefit from the fees — from $50 to $400 monthly — the new agents pay.

“Through lax hiring and training, many companies sponsor agents that have too little knowledge and experience to adequately serve consumers,” Brobeck said.

In part because agents are independent contractors and brokerages therefore have limited liability for their conduct, the firms often fail to offer effective training, mentorship and supervision, according to the report. For instance, one Keller Williams agent reported that a managing agent had been assigned responsibility for 100 agents. Also, if training programs exist they are usually online and not required, according to the report.

“The large majority of new licensees apparently are not required to take courses, participate in company training programs, seek a mentor, or receive active broker supervision,” the report said.

The CFA report suggested improved industry standards and consumer awareness when selecting agents to tackle the problem.

“Homebuyers and sellers benefit from considering recent sales experience and customer evaluations before hiring an agent,” Brobeck said.

Raising the bar

The report recommended steps for states, the National Association of Realtors, and individual brokerages to take to address the issue.

“State legislatures should require close broker supervision of inexperienced agents beyond checking paperwork,” the report said.

“Colorado, Illinois and Montana not only require closer supervision but define what this supervision entails. States should also follow the lead of those states, a small minority, that require agents to receive post-licensing education on the practicalities of selling property. Moreover, regulators should intervene when the complaints they receive show evidence of inadequate training and supervision.”

The report suggested NAR could differentiate inexperienced agents from full-time pros by raising the bar to become a Realtor.

“Today, few consumers understand or are influenced by this status,” the report said.

“If NAR were, for example, to require more experience and competence from Realtors, then publicize this difference, consumers would more likely hire these agents. These requirements could include, for instance, selling more than five properties in the previous year and initially passing a new exam on the practicalities of selling property.”

Setting higher standards to enhance the industry’s rep

CFA has long called for the decoupling of real estate commissions. The report highlighted that class action litigation will likely lead to “heightened consumer awareness of industry practices” and “more informed selection of agents.”

“The industry should also recognize that increasing the number of agents does not appreciably affect home sales but does reduce the average income of individual agents and brokers,” the report said.

“Companies and agencies should value full-time professional agents and brokers more highly than part-time sales agents who are engaged in other occupations.”

“The residential real estate industry needs to set higher standards for training and overseeing new agents,” CFA added. “These standards would increase agent competence, help ensure a smoother sales process, and enhance the reputation of the industry as well as benefiting consumers.”

Inman has reached out to NAR for comment on CFA’s report and will update this story if and when a response is provided.

Email Andrea V. Brambila.

Like me on Facebook | Follow me on Twitter

This post was originally published on this site