Too many Realtors for the market.

It is no surprise, that the number of Realtors has declined dramatically during the economic and housing downturn, but the exodus from our industry is a long way from over to return us to a realistic number. The chart portrays how many US residents there are for each Realtor (from the US Census and National Association of Realtors)

One can see the dramatic increase in Realtors during the housing bubble. In 2000, there was 1 Realtor for every 368 residents in the US. By the peak of the bubble, there was 1 Realtor for every 220 residents. Between 2000 and 2006, the US population grew by 6% while the ranks of Realtors grew by a whopping 77%!

The lure of easy money for little work was powerful during the housing bubble, driving hordes of folks to get their real estate license. Compared to historical data, we still have way too many Realtors chasing way too few deals. You may conclude that too many agents flooding the market would lead to more competition and lower fees for their services, but the inverse is true. With too many agents comes a powerful incentive for the industry to keep fees artificially high because the low-producing agents need to make a basic living (see the blog post of 8/26/09). An overabundance of agents also leads to the sub-par service levels that seem to plague our industry. As a result more sellers and buyers find themselves obligated to work with a friend, relative or acquaintance who does just a few deals/year or works part time.

What is also striking is that the efficiencies brought about by the internet seem to have had little effect on the total number of agents practicing. The ability to search for homes online has dramatically changed the role of the real estate agent and reduced the number of hours that they need to spend per transaction, meaning we actually need fewer agents to service the population. We know this for a fact because our company has been at the forefront, operating with dedicated agents that do almost 4 times the volume of the average agent and have many more years in business (17 vs 4).

I think we have a few more years of declines ahead of us in the number of Realtors in the US, perhaps more if the internet drives more efficiencies into the process of buying a home. I think it will benefit our industry tremendously to have fewer, better-qualified agents able to close more deals just like Homeowners Concept already operates. Raising the barriers of entry to our profession and increasing the efficiency of each individual agent will lead to better service levels and lower fees.