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According to the Association of Real Estate Licence Professionals (ARELLO), the total number of real estate licenses nationwide is somewhere between 2 million and 2.5 million. Here, we’ll lay out how the number of agents is believed to be hurting the housing market and costing the consumer money.
Competition among real estate agents
This summer, Stephen Brobeck, Senior Fellow at the Consumer Federal of America, released a study called A Surfeit of Real Estate Agents: Industry and Consumer Impacts. The study neatly lays out how overcrowding in the real estate business impacts the bank accounts of both agents and consumers. Based on a 2022 survey of 9,220 real estate agents, Brobeck learned that:
- Most sales agents report spending a median of 30 hours a week at work. In other words, they do not work full-time.
- And 18% of agents say they worked less than 20 hours weekly.
- Only brokers and broker associates reported working 40 hours a week.
- In 2021, sales agents earned a median gross income of $38,300.
- Also in 2021, 64% of agents with two years or less of experience had annual net incomes below $10,000.
- Real estate agents with three to five years of experience had a median income of $34,200.
- Agents with six to 15 years of experience reported a median income of $51,700.
The high cost of buying and selling
Think back to the last time you sold a home through a real estate agent. Were you surprised by how much you paid in fees? Chances are, you paid around 6% in real estate commissions, 3% to the selling agent and 3% to the buyer’s agent. Add to that closing costs. As the seller, you were responsible for title fees, escrow fees, real estate transfer taxes, reconveyance fees, and more. This typically totals around 3% of the total sales price. That’s a total of 9% going toward fees.
To give you an idea of how big a bite these fees take out of sales proceeds, imagine that you sold your home for $300,000. A whopping $27,000 in fees would come off the top ($300,000 x .09).
Home sellers worked hard to build equity, and a hit this big is a bitter pill to swallow. That’s why most build the expense into the price of their home, passing the cost along to the home buyer. It’s difficult to calculate how many millions of dollars home buyers spend each year, covering the sky-high expenses faced by sellers.
Stuck in the middle
As mentioned, most real estate agents are not getting rich. In fact, that 3% paid to each agent once a sale closes does not go right into their pocket or investment account. From that 3% (sometimes less), the seller’s agent must pay:
- 20% to 50% of their commission to their broker, depending on which real estate company they’re with
- MLS listing fees
- Professional photography
- Marketing expenses
And if your home fails to sell, it’s the real estate agent who’s out all that cash.
So, why don’t agents just lower their fees?
Real estate agents are not blind to the high cost of selling a home. Some will accept a fee of 2.5% instead of 3%. Still, there is no motivation for groups like the National Association of Realtors (NAR) to support lower fees. The sheer number of real estate agents holding licenses to sell in the U.S. makes it next to impossible for agents to accept less. Here’s why:
- There were 5.95 million homes sold in the U.S in 2022.
- There were at least 2 million agents with an active license in 2022.
- If the number of homes sold was divided equally between those 2 million agents, that means that each would have sold fewer than three properties in 2022.
Of course, there are high-volume sellers and low-volume sellers, so sales numbers are never equal. However, the fact that so many people are vying for the same business makes it difficult for an agent to earn a livable wage.
The consumer ultimately pays
Even if we put aside the fact that it’s the American consumer who must pay high fees to keep the average real estate agent afloat, there are other ways the crowded field of real estate sales costs the public.
One statistic frequently cited claims that 87% of real estate agents fail. Even if the reality is half that dramatic, that means that people are continually cycling in and out of the real estate business. Like any job, it takes time to learn to be a great agent and many agents don’t have the experience they need to represent their clients well. Here are some of the concerns agents raised while completing the Consumer Federal of America survey:
- “After two decades I found about 20% of my transactions were with highly competent, professional agents. The rest of the time I was handling transaction issues that the other agent either ignored or was unable to solve.”
- “Too many weekend warriors passing themselves off as experts…with one or two transactions under their belt, and looking to make a fast buck.”
- “I’m just at my wit’s end with the agents I’ve had to do deals with this year…I can confidently say only 1 in 10 agents I deal with are competent, professional, and honest. The other 9 out of 10 are lazy, uneducated, lie, and do shady business. How is this possible? How is this one industry so lacking in professionalism? Maybe I’m expecting too much as my background is in law and attorneys are forced to be professional.”
It’s important to note that Brobeck’s study found that consumers are generally satisfied with their real estate agents, despite how agents may feel about the industry. If a client doesn’t realize that they’re working with a less-than-competent agent, they don’t know when it’s time to cut ties with that agent.
Perhaps these agents were frustrated at the time they answered the survey question. But even if they’re partially correct, that means some consumers put their trust into unqualified agents when making one of the largest financial decisions of their lives — and that’s a problem.
The more real estate agents enter the industry, the more competition there is. The greater the competition, the more agents are forced to spend on marketing. And at the end of the day, it’s the consumer who pays the price.