Why most real-estate agents aren't getting rich

[ethics]

Whatever the explanation, the realtors' reliable cut of 3 percent each means that the housing bubble should be all upside for them. If house prices double, then agents make twice as much. Sell a house for $500,000 and keep $15,000; sell the same house for $1 million and keep $30,000. The agents are Levi Strauss without the copper rivets.


There is just one problem with this—a principle that economists term the "zero-profit condition." In a business with free entry, new participants will keep entering until no money remains. And becoming a real-estate agent is almost free. Most states require applicants to take a short class and a test to get a license. For $99, an online company will prepare you to pass. This kind of entry into the housing market is a lot cheaper than, say, building a steel mill. Every month, thousands of new brokers get certified—more than 8,000 in California in May alone.


With all these new agents swarming onto the scene, the price they charge may remain constant, but the number of houses each sells will not. The zero-profit condition predicts that, in locales where housing prices rise, the number of agents will also rise, and acquiring new clients will become that much more difficult. The occasional star agent will always make a bundle. But the theory suggests that the average agent won't make much more in places where house prices have risen than in places where they haven't.


Good article (http://slate.msn.com/toolbar.aspx?action=read&id=2124506), certainly explains quite a lot. I wonder how come they don't cover RE Agents from New York though?

[cdw]

Ok. Ya got me. First, there is a difference between a broker and a salesperson.
2nd in NY, as in Florida, there is no taking a $90 course online. And there is continuing education to boot. 3rd, it's a written rule in real estate...20% of the sales agents make 80% of the money. The sales agent working in a swift market doesn't have to work as hard as the guy working for less of a salary. And most of them don't want to. They are geared to make a certain goal. Are happy with that, working less, doing less, and taking more time off. :) In addition, you will find that most salespeople adjust their commission rate if the price of the house is much higher. And..you will have less salespeople actually dealing with the guys with the 'big' bucks.

As for the discount broker? Well, they offer less service. And the rap they give you about what they will do for you is just like the rap of the used car salesman. It has nothing do to with price fixing or anything of the like.
And yes, the best way to make the most money is to take your own money, buy low and sell high. Always goes that way.

[Stiofán]

Things are this way in my business and I'm sure in many others. There's only so much of the pie to go around, and you can only slice it so thin. The boom in litigation is not because we are getting hurt anymore than before, or being financially damged anymore than before, it's the massive numbrs of lawyers being pooped out of the law schools. In order to sustain this number they've gotten very aggressive in spreading litigation in our society. But housiing and insurance markets are finite - there are only so many houses you can sell or insure. Too many agents and some go hungry.

[cdw]

I would say it's that way for most businesses. But, people do tend to think that you are going to get rich in the real estate business. Most don't. They either make play money or they make a good living.