I gave myself a little project lately to run a quick analysis of MLS stats for 2009. There were two motivators for this:
First, a friend of mine was asking about how many agents make a living at real estate. Unfortunately, finding statistics for the commercial scene isn't easy. But, their question was really about the residential world, anyway (they had a coworker recently obtain their license). The vast majority of agents work in the residential world anyway. I threw out some off-the-cuff remarks that most agents don't make a living at real estate. I wanted to verify my assumption.
Another motivator for this exercise was a recruiting email from local real estate office. I was amazed that their recruiting mail used some incredibly misleading statistics... misleading or outright false. This was even more amazing after a recent real estate office got its license pulled by the state (http://licensingexpress.wordpress.com/2010/09/09/dol-suspends-real-estate-license/)
The main issue I had with the recruiting mail was that it said the company (or office... they were not clear on which) closed 23,000 transactions in 2009. There were no qualifiers provided and no explanation, or even source of the statistics. The reader (a real estate agent) was left to figure out exactly what was meant, but the implication was naturally that the office or company closed 23,000 transactions locally.
So with those two thoughts in mind, I pulled some information from the Northwest MLS (NWMLS) and making a couple of assumptions, came up with the following information
Sales volume
In the NWMLS area (most of Western Washington) there was $17,000,000,000 in sales, represented by 52000 sales (with 2 sides per sale that is 104,000 sides in 2009).
Number of agents
Ok, so how many agents were available to conduct those sales? Well, NWMLS says there were 23,582 agents in the system (Wow! That is a LOT of real estate agents.)
What does that mean for making a living?
Well, we've got to make some assumptions in order to figure that out. One of the basic assumptions is about commissions. They vary greatly, depending on property, service provided, company, etc. But, for now, let's go with 6% on average. It's the number I've seen the most often in these discussions. That 6% is most likely split evenly between agents on each side of a transaction.
OK, now time for some calculations.
With $17 billion in total sales and 52000 transactions, that results in an average transaction price of $326,923. A 6% commission would mean $19,615 per sale, or $9,807 per side.
With 23,582 agents and 52000 sales, that is 2.2 total transactions per agent, or 4.4 sides per agent.
Yep, on average, each agent only completed 4.4 sides last year. (We'll talk about less-than-average agents shortly). So, with $9,807/side and 4.4 sides, that means each agent would have grossed $43,153 in gross commissions.
But, as any small business owner knows... your gross income is not what you take home. Making that income costs money, which comes out of that gross income. Most agents I know assume a budget where their net income (the money they take home) is about 50% of their gross income. The other 50% is taken up in the basic costs of being an agent: MLS membership, REALTOR org membership (if they are a REALTOR), office and desk fees, advertising (for themselves and for their client's properties), insurance, phone, internet, computers, training, and on and on and on.
This means that on average agents make about $21576 per year. (And they pay income tax on that!). The equivalent of having a regular, full-time job that pays $10.38 an hour. Not a particularly great way to make a living... there must be easier ways to make that kind of money.
Average and Not-so-average agents
OK. Time for a reality check. In my opinion, there are very view "average" agents. In fact, my off-the-cuff remark to my friend was that I felt that half the people who have their real estate license most likely participated in NO transactions last year. There is no way for me to know if my guess is accurate, but I think it makes sense. Here is why:
Remove half the available agents from the pool and it looks possible for a decent percentage of agents to make a living. To make $50K a year would require a gross income of a $100,000 or more, which doesn't seem unreasonable. To gross a $100K, that would require more than doubling the number of sides an agent participates in... so take the number of sides for those agents from 4.4 to 8.8 (or a nice round 9).
But, there is more of a split than that. The transactions are not split evening across the 50% of ‘active' agents. We all know a few successful agents who are always busy and are always closing transactions. Not making millions, but doing well. The experienced agents who have at least 1 transaction a month and usually more. But, let's say they only close 12 sides a year, not 9 sides. If 25% of the total agents do that, than they still gross under $120,000 per year. National statistics suggest that few agents gross much more than that.
That leaves 5.6 transactions per year for the other 25% of the agents who have any business. They gross around $55,000 per year (on average) or net $27,500.
So, to sum up the theoretical split on $17 billion in sales and 52,000 transactions:
- 50% of the agents have basically no transactions.
- 25% of the agents average 5.6 ‘sides' per year, for a net income of around $27,000 per year.
- Another 25% of the agents average 12 transactions a year, for an average net income of around $60,000 per year.
Is that really how it splits up? Without more direct access to the source statistics, it would be hard to know for sure. But, my gut feeling is that it is close. It matches up pretty closely with the classic 80/20 rule... 20% of the agents are doing 80% of the business. It also matches up well with my personal experience and knowledge: how many transactions have I participated in, how many transactions other agents I know are participating in (both the folks who are busy and those who are not). As for the large number averaging a net income of $27,000/yr or less, well, there is a good chance they are not supporting their family with that kind of money here in the Pacific Northwest, which matches up nicely with the idea of these agents being secondary income providers in their family.
What about that recruiting mail?
These stats made me feel quite justified in my skepticism. Even giving them the benefit of the doubt and assuming they mean "side" when they said transactions... then they are saying their office had ¼ of all transaction sides in the area last year. Pretty impressive for any one office to pull that one off, wouldn't you say? Using the other assumptions about how the business splits up, it would imply that this office had a minimum of ¼ the agents with business.... probably more.
All in all, I was left with some serious doubts about the integrity of the company. If they are being disingenuous with me... how do they treat clients and the public? I won't be joining them any time soon.
Anyway, it was an interesting exercise and I'll point out the numbers to my friend. I hope you are part of that elite 25% who making a good living at real estate!
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