Too many agents, too few buyers
Jim Buchta, Star Tribune
Chris Galler, senior vice president of the Minnesota Association of Realtors, has some advice for real estate agents who handle only a few transactions a year: Consider getting out of the business.
The stark reality in the real estate market is that there are too many agents chasing too few buyers. Even as home sales have slid, the number of licensed agents and brokers has jumped 8.8 percent statewide between January 2005 and September 2006 to 40,930, according to the Minnesota Department of Commerce.
That conundrum may prompt some to quit the business voluntarily or involuntarily, a reduction in commissions as agents compete for a smaller share of business, or both.
It's getting so crowded that hints to less-productive members are no longer subtle. In his association's fall member resource update, Galler asks: "Is it time for a career adjustment?"
Galler thinks that may be the case for a number of Multiple Listing Service participants, particularly for the roughly 50 percent who handle fewer than two transactions a year.
Galler said he's not discouraging people from joining the industry, he's just trying to discourage agents who don't have the skills to deal with a more challenging market to consider other options.
"A lot of people think it's easier than what it is now," said Galler, who said there could be a 5 percent decline in licenses in the coming months depending on market conditions.
Meanwhile, new home construction has fallen to levels not seen since the early 1990s.
Mark Allen, chief executive of the Minneapolis Area Association of Realtors, said that new agents are still joining the market faster than those leaving, but already he's seeing a slowing in the number o! f new li censees. And many veteran agents are waiting to see what happens, including many who might have considered leaving the business five years ago but couldn't resist the commissions that came with the boom market of recent years, Allen said.
When the market peaked in 2004, 5,345 new sales agents were licensed, a growth rate of about 445 per month, according to the Minneapolis Area Association of Realtors based on data from the Minnesota Department of Commerce. Through September 2006, new agents came aboard at a rate of just 362 per month.
One of those new licensees was Judd Sampson, who passed his real estate license exam last December when the market was heading into one of its slowest times of the year. Closed sales had dropped precipitously from the previous year, and for every pending sale there were seven active listings -- a classic buyer's market.
Still, the 24-year-old south Minneapolis resident gave up his restaurant job in April too focus on selling real estate. "I'm a strong believer in solid marketing, and great service will always be needed no matter what market we're in," he said.
For consumers, great service could come at a cheaper price as agents offer discounts to spur business. At the same time, total compensation for agents and brokers will decline as they chase fewer sales. That could force brokers to thin their ranks of agents to reduce overhead costs.
Veteran sales agent Faith McGown said that competition is one of the reasons she left her job at a discount brokerage and took a desk at a full-commission brokerage, Coldwell Banker Burnet, where many agents often charge commissions in the 6 to 7 percent range.
"It's very frustrating," she said. "Everyone has a cousin, brother or neighbor who has a real estate license, but having a license doesn't mean they are a Realtor."
The problem, she said, is that selling a house now takes longer and requires greater marketing expense.
Previously, McGown worked for a company th! at charg ed sellers only a 5 percent commission.
"In the current market, that isn't possible anymore, at least not with the level of service I give my clients. I just wouldn't make any money," she said. "If you don't do it, a customer will find someone who will, so it makes it hard to know how far you want to go to get a deal."
The president of McGown's company, Robin Peterson, said she isn't concerned about the number of agents in the market right now. Her philosophy is that the market will correct itself, and that's why the company is still recruiting new agents and buying new companies. During the past year, the company bought two small brokerages to help bolster its market share.
"Our strategy has always been one of growth," Peterson said.
Edina Realty General Manager Barb Jandric, who was hired in part to guide the company through the latest market correction, offered a harsher assessment.
"For the long run, there are too many agents in the business," she said. "The number of agents in the business will correct just like the real estate market has corrected."
Jandric said that if the sales force doesn't adjust to current conditions naturally, she will consider a more proactive plan to dismiss agents who aren't performing to the company's standards, particularly those who lack proven sales skills.
"What it will take to succeed in a buyer's market is the opposite of what it takes to succeed in the last five years," she said. "It's two different skill sets."
Newcomer Sampson, who works for Edina Realty, is already confronting the realities of a more-balanced market. He works every day, including "face time" with buyers and sellers at open houses.
At home and in the office, he spends the rest of his time promoting his listings online and trolling the Web for sales leads.
He's already seeing the rewards. Since December, he's been involved with seven transactions and is optimistic that there's a future for him in real esta! te. "No matter what the situation in the world," he said, "people always need a place to live."
Jim Buchta • 612-673-7376 • firstname.lastname@example.org