Industry data

I found myself wondering the other day about the economic impact of the decline in the real estate market on agents.

The reason for my curiosity is pretty clear: The Real Estate Book business depends on the income of real estate agents. The agents who are going to invest in high-visibility, high-impact marketing tools like The Real Estate Book are going to be among the high-earners. Over the past three years, the scale of our business has dropped dramatically and rapidly. How much is a decline in income driving that decline, I wanted to know.
A lot.

Fortunately, the National Association of Realtors is exceptional at gathering a lot of information consistently. The association does several different annual surveys and is smart to keep their questions consistent, so that you can compare trends over time. While their Survey of Home Buyers gets a lot of attention, they also do an annual survey of realtors that has a lot of rich detail on how realtors are managing their business.

So I dug into the NAR data to try to scale the market. There were three clear conclusions: Commission income has dropped dramatically; the number of high-earning agents has dropped just as dramatically; and marketing spending has dropped dramatically.

First, commission income. To extrapolate trends in commission income, I took the average home price and total number of transactions from 1996 to 2009. I then applied a uniform commission rate over the series. (One could argue that average commissions are down the past two years because of the influx of bank-owned properties in the market.)

Using this formula, commission income peaked in 2005 and dropped like a stone to 2009. About 10 years of commission growth was lost in the 24-month period.

Commission income should be roughly flat in 2010, based on NAR home sales projections and a 15% drop in average price. The good news for top earners is that there should be fewer agents competing for the commission dollars, and that consumers are likely to gravitate to agents who have reliable track records and are clearly in the business full-time.

How many agents is that, I wondered? That led me to create another extrapolation to estimate the number of high-earning realtors. To calculate this number, I used the percentage breakouts from NAR’s realtor survey and applied them to the total number of realtors in each year, according to NAR.

According to this approach, the number of high-earning realtors has declined by more than 40% from the peak of the real estate market. All told, there are about 178,000 agents that make over $100,000 per years, compared to 312,000 in 2006.

This is an incredible loss of earning power. The drop in commission revenue has been accompanied by a drop in marketing spend. All told, the number of realtors that spend more than $2500 a year on marketing and advertising has declined 45% to about 200,000.

A couple of interesting trends surfaced when I dug into the distribution of annual marketing spend over the past few years, according to the NAR survey.

First, the median marketing spend was down 31%, less than the drop in commission income over the same period. This is a byproduct of realtors trying to keep up a subsinence level of marketing. The larger marketers cut their spending by 50%.

Second, realtors have not expanded their investment in online media, keeping it at about 10% of overall advertising and marketing spend.

I’m a glass-half-full kind of guy, so when I look at these figures, I’m struck by the opportunity for higher-earning realtors to increase their investment in marketing in order to increase their share of the market. But, by any account, the contraction in marketing spending by real estate agents over the past two years is difficult to process, it is so large, pervasive and complete.

{ 5 comments }