4% Decline Of Realtors Is Only The Beginning

Implications: NAR is correct to classify the decline in Realtors as victims of the current housing down turn. What the article does not tell us - the decline will be beneficial for both the consumer and the remaining real estate agents.

Analysis: The decline in NAR membership may be the only positive to the current housing slow down.  The reduction will be a direct benefit to consumers and the remaining real estate brokerage companies and agents. My hope is that the decline will be more in the range of 20%-30% over the next two years.

The NAR prediction of a 4% decline by the end of 2007 may be accurate. But, one month later (the end of January 2008) I believe the net numbers should be down over 10% from the high. Why the big drop in just one month?  January is the month when many annual payments and fees are due as a Realtor.  Annual dues for NAR and MLS membership need to be paid in addition to many company charged fees, including errors & omissions insurance and license fees in many states. It is expensive to be a Raltor with no income being generated. The industry currently is keeping many "ghost" Realtors on the books that may have already taken other jobs, or left the industry without telling anybody.  Come January many of these agents will be removed from the active ranks.

A majority of those leaving the industry are being forced out by wiser and more sophisticated consumers. No longer can an agent put a sign in the ground and wait for the multiple offers to roll in. Those agents that do not invest in continual training, innovative marketing tools, and hard work are not going to survive 2008. In a slowing market, with a glut of agents, consumers are able to differentiate the true career professional from the non performers. The non performers will exit the industry because of their lack of ability to earn a living.

As recent as 2001 there were approximately 800,000 Realtors in the US. From 1979 until 2001 we had a very short range from about 700,000 to 825,000.  At our peak this year we topped 1.4 million. In 2001 there were over 6 transactions completed for every Realtor. In 2005 when housing transactions set a record, Realtors averaged a little over 5 transactions. In 2006 as the market slowed quickly, Realtors averaged a little over 4 transactions, it will be less this year.

As an industry we are very inefficient. The better quality agents and companies can each handle quite a bit more business.  With volume comes cost savings to agents, brokerage companies, and consumers. As the business soared from 2001-2005, it was almost too easy to be a real estate agent.  Many people entered with little training, oversight, or consumer tools. It may sound counter cyclical, but the housing decline can actually help foster the return of increased volumes and profitability for qualified agents and companies. It can also aid consumers, allowing only the most professional of agents surviving.  It may require a drop in agents to the 500,000 national levels for consumers to enjoy the quality service and cost savings they are now demanding.

As new business models are constantly being tested and introduced, this decline in agents can be seen as a real cross roads for the future of the industry.  How many agents are really required? If the consumer can not notice a differentiation from one company or agent to another
then consumer fees will be reduced and quite severely. The value proposition for the real estate agent must be real to the consumer.
The industry must transform to consultants and housing advisors rather than the information providers of old. The adage that "cream rises to the top" is certainly being tested in 2007, and I believe 2008 will be much of the same.

The housing market will begin an upswing at some point.  My hope is that there will be far less Realtors serving consumers in a much more professional and consistent manner.