AVERAGE REALTOR PRODUCTIVITY COLLAPSES
By: Stefan Swanepoel
July 2007 - We all know that 2000 - 2005 comprised one of the hottest real estate markets on record. During this period the country experienced a buying frenzy fed by low interest rates, a plate full of new mortgages, bullish customer confidence, low unemployment, strong economic growth and excellent price appreciation. Not only did home prices and the number of home sales surge but so did the number of REALTORS.
As a result, according to the Swanepoel TRENDS Report, the industry is now burdened with too many licensed real estate agents and too many REALTORS. Statistically the average REALTOR sold about 30 percent fewer transaction sides in 2006 than in 2000 (see graph). Normal supply and demand would have resulted in halting the influx of new agents, but commission income was enhanced by the sharp increase in house prices. As a result, the number of agents and REALTORS continued to grow past the market peak.
Along with the growth in broadband usage, cheap hardware and open-source software, the Internet is also rapidly creating a new home buying and selling playing field. In addition, as we saw this week on the CBS show, "60 Minutes" (‘Chipping Away at Realtors' Six Percent’), real estate commissions are also facing a strong threat of being sliced in half over the course of the next years. Add to that the fact that house prices are declining on a broad basis across the country and suddenly total commission dollars have a real possibility of a sharp decline over the next few years – maybe as much as $20 billion dollars.
So the real estate industry would actually be better off if we could reduce the number of agents and REALTORS - say 25% over the next few years. If we don’t see a reduction, there will be a large number of agents not able to make a living and the number of part-time agent will increase even more.
According to the 159-page Swanepoel TRENDS Report 2007, the 2000-2006 housing frenzy has spawned numerous additional issues contributing to a hangover affect. According to the Report, some side effects like the following will be part of the fallout:
• Rise in the number of foreclosures
• Increase in mortgage fraud
It’s not that the real estate industry hasn’t experienced a shifting housing market or any of these challenges before, but this time the added impact of the many new business models adds more pressure on the decline of commissions. It will certainly result in far more fundamental restructuring than ever before. “The residential real estate brokerage industry is shifting towards a new paradigm and the change can no longer be halted,” said Swanepoel.
Those real estate professionals that want to be the dominant players in the new real estate paradigm are going to have to rid themselves of yesterday’s mindset and habits. The good news is that, according to Swanepoel, no single business model (traditional or new) has yet emerged as a clear winner. However, he strongly encourages brokers and agents to “to incorporate a strong online capability, a strong consumer-driven focus, offer a wide selection of services at a lower cost and above all remain current and knowledgeable about what is happening.”
To stay on top of all of the trends and your options, get your copy of the encyclopedic 159-page 2007 Swanepoel TRENDS Report detailing the top 10 trends at www.ReTrends.com.
Stefan Swanepoel is widely recognized as the leading visionary on trends and change in the real estate industry. He has penned 13 Books, Whitepapers and Reports including the 1998 Amazon.com bestseller, Real Estate confronts Reality (1997), the sequel Real Estate confronts the Future (2004), Swanepoel TRENDS Report (2006) and Swanepoel TRENDS Report (2007). His academic accomplishments include a bachelor’s in science, a master’s in business economics and diplomas in arbitration, mergers and acquisitions, real estate, computer science and marketing. Stefan serves as Chairman and CEO of RealtyU Group, Inc., the largest career development company in the real estate industry educating over 350,000 agents every year. Copyright© 2007, Stefan Swanepoel.
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