It’s altogether too easy to blame real estate’s excessive number of newbies for a variety of ills in the industry that include intense competition, downward pressure on commissions (a boon to sellers, though not brokers) and unethical behavior. But the newbies themselves, as a group, aren’t at fault for these conditions.
It’s altogether too easy to blame real estate’s excessive number of newbies for a variety of ills in the industry that include intense competition, downward pressure on commissions (a boon to sellers, though not brokers) and unethical behavior. But the newbies themselves, as a group, aren’t at fault for these conditions. Rather, the responsibility lies at the feet of state lawmakers, real estate brokers, trade associations, licensing schools and, admittedly, the media.
Here are some suggestions for how to fix this problem:
State licensing authorities need to raise the bar on what it takes to obtain a license to sell real estate, and they need to issue new provisional licenses, which are not simply a holding tank that awaits the mere passage of time. Provisional licenses should have some meaningful restrictions, and conversion of such a license into a regular license should be predicated on the new licensee having achieved some measurable milestones that indicate he or she has obtained some useful experience in the business.
Critics may scoff at higher barriers to entry as contrary to the benefits of competition and free-market dynamics, and in most instances, they would be right to do so; however, the peculiar circumstances of the real estate industry suggest that higher barriers are warranted and, indeed, necessary to protect the public and the industry itself from this over-abundance of ill-prepared and inexperienced salespeople.
The downward trend in home sales this year may force many newbies and veterans alike to exit the business, but the cycle is bound to repeat itself, and the next up market undoubtedly will entice yet another flood of newcomers into a marketplace that’s already intensely competitive and over-supplied with such services. That’s another reason why higher barriers make sense.
Brokers need to consider the true cost of the revolving door to the brokerage company. Perhaps each new recruit brings a handful of commissions at a lucrative 50-50 share into the brokerage coffers. But what is the cost in terms of management time and attention and the heightened risk of liability due to newbie errors and omissions? What is the cost to the recruits themselves and what responsibility (if any) does the broker have to consider their financial well-being?
Brokers also need to consider the impact of the massive newbie population on the health of the industry in which the brokers themselves operate their own businesses.
A 2003 study published in The Journal of Political Economy and reported by Inman News concluded that more real estate practitioners doesn’t result in more satisfied home buyers and sellers. Instead, the authors wrote: “The cost of finding a customer increases with the number of Realtors in the market, without necessarily generating additional benefits to the customer.”
Trade associations need to acknowledge the conflict of interest between what’s good for their members, i.e., not so many newbies, and what’s good for the association, i.e., as many dues-paying members as possible. Associations are in a good position to educate and inform the public (and the media) about the true prospects for success in real estate, the high rate of turnover in many brokerage companies, the actual incomes that most Realtors earn and the fact that newbies must make a substantial investment to get started in the business.
Licensing schools exist solely to sell real estate license courses, so they can hardly be faulted for signing up as many students as possible while they can. No law or regulation bars the sale of such prep courses even when the ranks of the business for which the license is required are already full. That said, the question needs to be asked: Is it ethical to recruit so many people into these classes when their odds of success in the business are so unfavorable?
Instead, these schools need to up the cost of licensing courses to the point at which they can curtail demand, but still earn a healthy profit. License schools also could join forces with brokerage companies to offer affordable training classes that go beyond the license examination and bring better-prepared new salespeople into the business.
Finally, the media needs to educate the public about the true costs, risks and opportunities of entering the real estate business. Newspaper real estate sections, trade magazines and Web sites need to report not only the numbers of new licensees, but also how competitive the business really is, how much it costs to get started in the business, how many people fail to earn a living — much less become successful — and how much money most agents, apart from the superstars, really earn.
Marcie Geffner is a real estate reporter in Los Angeles.
Copyright Marcie Geffner. All rights reserved. No part of this article may be used or reproduced in any manner whatsoever without written permission of the author.