A glut of inexperienced real estate agents is harming the industry as well as consumers, the Consumer Federation of America concluded in its latest economic report.
The nonprofit consumer group’s report said that more than 1.5 million residential real estate agents are competing to sell between 5 million and 6 million homes each year. The study looked at home sales in Jacksonville, Florida; Minneapolis, Minnesota; and Albuquerque, New Mexico and found that “marginal” agents who completed five or fewer sales a year grabbed between 25% and 30% of commission income in those individual markets.
The CFA argues that the cost of those “marginal agents” scooping up a quarter of commissions includes:
- economic inefficiencies including an inordinate time spent by agents finding clients;
- relatively low incomes of many full-time agents;
- frustration by these agents and by many consumers who must 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. “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 report cited National Association of Realtors data dating back to 2021 to make the case that most agents not being full-time is harmful to the industry and consumers. The data from the NAR 2022 member survey found that the median work week for agents was 30 hours.
The median net income of all sales agents was $25,000; the median net income of sales agents with less than two years experience was $7,800; and the median net income of all brokers and associate brokers was $57,100.
Some experienced, full-time agents complain about the “incompetence and/or inattention” of other agents that also harm consumers, the consumer group said. The report also found that real estate agents and brokers feel “financial and/or peer pressure” to keep commission rates relatively high because of the high number of agents.
“Without 5-6 percent rates, even fewer agents would survive financially in today’s marketplace,” said Brobeck in a statement. “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 as to whether the industry should make greater efforts to ensure the competence and commitment of new agents, including more stringent entry requirements and required mentoring of new agents.
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 MLS data.
In Minneapolis, CFA was able to identify 956 of the 1,000 sides and 267 of the sides (27.9%) were represented by agents with five or fewer sides. In Albuquerque, the consumer group identified 963 of the 1,000 sides and 269 of the sides (27.5%) were represented by these “marginal” agents. In Jacksonville, CFA identified 953 of the 1,000 sides and 324 sides (34%) were represented by “marginal agents.”
The report raises the question as to whether the industry should make greater efforts to ensure the competence and commitment of new agents.
Before computing these percentages, the authors of the study assumed that the “marginal agents” would be more likely to sell cheaper homes and be less represented at higher price points.
“The dollar commission on the sale of a $600,000 home is typically three times the commission on a $200,000 home. 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% to 30% of all commission-related income.”
Such efforts could include more stringent entry requirements and required mentoring of new agents.