I try not to double up the content here, and this was only linked in a previous blog post so I’m not sure how many readers saw this previously. But it is noteworthy!
This third report on a surfeit of agents focuses on the role of real estate companies in the creation of the glut and related incompetence of many agents.
Our analysis of the sales experience of 2000 representative agents from large companies in five different areas revealed that there is an even greater surfeit than we and many others had imagined. Nearly one-half (49%) of these agents had none or only one sale in the previous year while nearly three-quarters (70%) had five sales or fewer. Almost all of these agents hold another steadier job or are retired. For most agents, the residential real estate industry is truly a part-time business. Yet despite this agent glut, many large companies keep recruiting new agents, often regardless of agent qualifications. They do so largely because of four factors – high agent turnover rate, new agent sales to friends and family members, fees paid by these agents, and limited liability for these agents since they are independent contractors. For these same reasons, many companies continue an association with agents even when the agents routinely sell only one or no properties a year.
The surfeit of agents ensures that many will not be able to receive adequate personal training and mentorship. One agent reported that a managing agent had been assigned responsibility for more than 100 agents. Large companies do make available on-line training but many agents report that what new agents really need is experience working with a veteran agent and close supervision by a broker while they are selling properties. That close supervision is not required by most states. Of the 50 states (and DC) we examined, only seven require closer supervision of new agents than more experienced ones. Furthermore, that close supervision is often not clearly defined, and we have seen little evidence that state regulators have focused on the issue.
Consequently, some companies and agencies feel permitted to adopt a “sink or swim” approach to their new agents that certainly is not to the benefit of their consumer clients. There are roles for states, the National Association of Realtors, and individual companies and agencies in addressing this issue. State legislatures should require close broker supervision of inexperienced agents beyond checking paperwork. 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 National Association of Realtors (NAR) could play a role differentiating inexperienced sales agents from full-time professionals by raising the standards of earning Realtor status. Today, few consumers understand or are influenced by this status. 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.
Many companies and agencies take seriously the training of new agents, yet many do not. The latter should recognize that heightened consumer awareness of industry practices resulting from class action litigation is likely to encourage 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. 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 glut of agents and the inadequate training and experience of many has an important implication for consumers. Both home sellers and buyers should choose their agents carefully. These consumers should pay particular attention to the number of recent sales and client evaluations of the agents considered. Both Zillow and Realtor.com list this information about many agents, and this information tends to be more objective than that offered by referral agencies. Consumers should be wary of agents without an informative listing on either website. Friends and family members who have recently sold or purchased a home can also be consulted, yet consumers should also use Zillow and Realtor.com to supplement the information these individuals provide.
Click here for the full report:
