Is a Hot Market the Friend of the Realtor?

In July 2001 there were 6,604 Realtors with the REBGV.  There were 16,051 listings that month, and  2,798 sales.  That’s 5.74 months of inventory, and 0.42 sales per month per Realtor. 

I don’t have the 2002 stats, but by July 2003 there were 6,932 Realtors, 11,749 listings, and 4,231 sales.  That’s 2.78 MOI, and 0.61 sales per month per Realtor.

 July 2004 brought 7,560 Realtors, 14,757 listings and 3,193 sales.  MOI was 4.62, and sales per Realtor was 0.42.

 July 2005 had 8,047 Realtors, 11,650 listings, and 3,924 sales.  MOI was 2.97, and sales per Realtor were 0.49.

 July 2006 had 8,674 Realtors, 12,595 listings, and 2,870 sales.  MOI was 4.39%, and there were 0.33 sales per Realtor.

Today’s average sales price was $523,000. At 7% and 2.5% that’s  $17,575 total commission.  Multiply that by 0.33 and you get $5,799.  That’s gross income per Realtor. There’s a rule of thumb that by the time you get to the accountant its all 70/30, and 70% of the gross is $4,059.  That’s $48,717 per year.

If we use all the same numbers except the number of sales per Realtor, and replace the 0.33 with 2001’s number of 0. 42 the Realtor’s net increases to $5,167 per deal, or $62,004 per year.  That’s a 27% increase in a market with 5.74 MOI.  Maybe July isn’t representitive. 

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26 Comments

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26 responses to “Is a Hot Market the Friend of the Realtor?

  1. e

    hi Rob,

    interesting points. however, you assume 7%/2.5% commission. would it more likely be3.x%/1.x% since most sales are probably not dual agent?

  2. jim

    e: most sales are dual agent in a hot market in the high end. Don’t know about the low end.

  3. jim

    Rob: No argument here that most realtors, particularly some newbies, should not be in the business because they can’t earn a living wage. I have long believed that hot markets attract a bunch of ex waiters and house wives (not that either of these aren’t noble professions) to the RE game and dilute the listings per realtor. I would think that a hot market is predicated on a lot of luck as to who gets listings-meaning a newbie lists their dad’s, sisters’, friends, house etc.
    I maintain that the ease of selling is offset by getting listings in a hot market, and in a cold market the reverse is true. I remember going to open houses in the early 80’s and the realtor would comment he had zero showings since listing it,, and was working 30 plus listings.

  4. Mightymouse

    When I sold my place late in ‘05’, I used a discount broker and operated as the selling agent. I knew the market was hot enough that no ‘selling’ was really necessary. So I guess in that sense a hot market doesn’t really serve the realtor as you get more sellers attempting to sell on their own. Of course I still offered a competitive commission to the buyer’s realtor on the advice of the discount broker.
    All in all, I probably saved a few grand.

  5. e

    mighty: thats the smart thing to do. list with those flat fee $800/listing places, and then offer the full buying agent’s commission + a few hundred more. to the buying agent, it would be more preferable to show your property than anybody elses’ (other than his/her own listings of course).

  6. newbeliever

    Why are so many unqualified realtors allowed to practice. It seems that the entry barrier is very low, thus you get to compete with poorly qualified agents. It seems as if the realtors’ market is inefficient and is unable to correct for the short term misallocation of resources, I wonder where I’ve seen that before…

  7. Too many realtors?

    Its a realtor bubble!

  8. millionpitfall

    In 2006 the following industries created the highest percentage of BC jobs. Here are the top four:

    Construction 8.2%
    Architectural, Eng & Design 2.2%
    Building Services 2.0%
    Real Estate 1.8% (low & behold)****

  9. jim

    millionpitfall: Powerful stats. Makes for a fragile growth cycle. Can you post a link to these stats?

  10. wise_investor

    Great insight into the stats, correct me if I am wrong, but all else being equal if we are assuming 7%/2.5% it doesn’t really matter if there is a buy and sell agent sharing b/c we are just looking at gross commissions divided by # agents to get the average commission per agent.

    A few questions:

    1. Does the 80/20 rule apply in the realtor business, ie. 20% of the realtors are responsible for 80% of the gross sales $.

    2. How much does it cost in annual fees for a realtor to maintain their license with the REBGV? CREA? Their respective Agency?

    3. Does the agency or “house” take a cut on an agents gross commissions before paying them out? I’m assuming this number decreases as an agents sales numbers increase, but what is typical 50% ?

    These factors would greatly affect our interpretation of how much most realtors are really bringing home; perhaps we should use median instead of average if at all possible and assign variables to 1 through 3.

  11. Craig

    millionpitfall:

    Thanks for the stats. They look incredibly bearish to me. No growth in areas that really move GDP (i.e. exporting goods that other nations want such as lumber and minerals, or bringing in foreign cash in exchange for services ala tourism). Where is the money coming from to finance this construction related job growth? It certainly isn’t the typical Vancouverite family with their below national median family income and low savings taking on a mortgage with 20% down or less. Could it be coming from Asian lenders?

    Does anyone have any conjecture as to whom exactly is financing the double digit yearly appreciation we have been seeing? The money has to come from somewhere and it ain’t Vancouver!

  12. millionpitfall

    Jim,

    When I posted a reply back to you in yesterdays thread, I posted a link to these stats. The stats are towards the end of the page and it is very interesting reading indeed. You must of missed it.

    No worries, the link is near the top of the thread anyway. Take a look, tell me what your opinion is. I say the heavy weights are in the ring.

  13. Hypester

    With Rob’s reports of 10 to 20 million $ plus homes selling daily we ask “who’s buying these million $ McMansions? Certainly not your average working family in the GVRD. Do we have that many affluent people moving into or investing in Vancouver to gobble up 300 – 400 , million dollar + homes per month? Is this still speculation gone “mad” or real money being spent?

    On the realtor income topic, if the 80 /20 rule applies…… then 20% are professionals that work hard. The balance of 80% are part time housewives, firemen, contractors, renovators, speculators, flippers, ministers, retired individuals from other jobs, and maybe even the odd (perish the thought) drug dealer.
    No wonder most people cringe when you say “realtor”…. car salesmen and lawyers can’t even be “part time” at their jobs.
    Tougher credentials and proof of full time employment would do a lot to clean up the “realtor”image.
    48 K a year average income is pretty good for partime employment !

  14. jim

    Craig: “Where is the money coming from to finance this construction related job growth? It certainly isn’t the typical Vancouverite family with their below national median family income and low savings taking on a mortgage with 20% down or less. Could it be coming from Asian lenders?”
    There are several distinctly stratified markets. The million dollar homes are being bought by dual income professionals, the trade up market with equity grown over the last few years, and some inheritance money.
    I am frankly sick of the drug dealer, Asian/Russian invasion hypotheses or the “buyers are all idiots” theory which is regularly advanced by bears. Unfortunately a twenty something or 30 something with an income of 100k and 100k in savings is shocked he can’t afford a house or even a decent condo in Vancouver West.
    Sorry, but you are competing with dual income 40 something’s or 50 something’s, with a 300 to 400k plus combined incomes. $500 k, or $2 million in equity from 30 years of saving and judicious trading up (possibly even an inheritance). Prices are inflated beyond the fundamentals as an aggregate, but not by postal code. Put another way: It sucks to be 50, but at least I’m rich. 🙂

  15. millionpitfall

    For Jim and anyone else who is interested. I went back to yesterdays thread and found the link to job growth charts by industry type. The charts are towards the bottom of the page. Charts show highest job growth industries from 2001 -2006, with 2006 percentages in column beside it.

    http://tinyurl.com/yohro5

  16. robchipman

    I guess my aim in posting these stats is that some assume that a hot market is great for Realtors and that when this market cools Realtors will suffer a loss in income. That supports the thesis that Realtors pump the market to make more money.

    The numbers don’t seem to support that. I’m sure that with a market turn around we’ll see fewer Realtors making more money (whcih is the proverbial wisdom).

    Interesting comments concerning the wisdom of using a discount broker but offering the full pull to the selling agent. Perceived savings may be illusory 😉

    Most sales we do involve two agents.

  17. jesse

    Rob has commented before on the frustrations Realtors have with hot markets. Prices are increasing but the pace of sales can be very stressful for the agents. I was talking to one Realtor and she said she preferred balanced markets because the flow of work is more manageable. Regardless, you are effectively “on call” a lot of the time, though many agents take a 2 months’ break in the winter: not bad. I would not classify Realtors as part-time work any more than a dishwasher repairman.

    The increase in the number of Realtors is to do with the increased commissions from sales due to higher prices. If prices stay high one of two things will happen: commissions will remain high as will the number of Realtors, or the commissions decrease and the number of Realtors decrease as well. Which one would the agencies want in the long run? Hmmm…

    Agencies may not have a choice but to start lowering commissions, with some of the discount and “semi-discount” agencies entering the market. Some of the smaller agencies still provide a reasonable (i.e more than “discount”) service for not too much $. The big national guys charge a premium for brand.

  18. Lawrence I'm Getting Tired of Giving You a Forum For Your Juvenile Names

    As a group realtors don’t make a very good income. This is determined by market forces, and obviously it’s related to the low level of knowledge and skill required.
    What’s comical is, some time ago, engaged in a heated debate over the designation of “professional” in reference to realtors.
    Well how many professionals in the true sense would settle for such low wages?

  19. robchipman

    Wise investor:

    I should know these numbers, but the fact is that I don’t care that much. If you told me a real estate licence costs $100 I’d buy one. If you told me it costs $20,000, I’d buy one (I would confirm that it was tax deductible!)

    It costs about $1,000 to be licenced for 2 years. Then you have Crea membership and Board membership. I think I pay a couple hundred a month for that on a flat fee basis. It used to be a portion of the commission, but the Board has experienced as much pressure as everyone else to become competitive and flexible over the last 20 years.

    The 80/20 rule is good theory, but its probably more like 70/30, or something. You’re on the right track though: for every Realtor who makes $100,000 plus there are many who make less than $20k.

    When I say that by the time the Realtor gets to the accountant its all 70/30 I’m reconciling the old system of split houses. In the old days the broker took 50% of the commission but paid all the fixed expenses. Dave Linnegar applied the 80/20 rule and decide that if he hooked up with the 20% from sseveral offices and split the costs all the top producers would keep more money and dominate the market. He called it Re/Max, and it was a great idea. The problem is that while it exposed a fundamental weakness in the old business model, it initiated competition based on price. If Re/Max can charge a fixed fee of $2000 per month, the next guy (call him “Sutton”) determines he can do it at $250/month. Then guy number 3 says “$75/month” followed by guy number 4 at “6 months no desk fee!”. The Realtor gets 100% of the commission (hence the name 100% house), but the broker passes on fixed costs to the agent. It looks like 100%, but by the time the agent pays all the additional costs (fax mark ups, copier mark ups, handling fees on fees, cel phones, cards, signs, ads, etc) it turns into a split.

    Some places do graduated splits. 80/20 split to $100,000 gross commission, then free deals the balance of the year kind of thing.

    You can see that its tough to determine an average figure. Realtors really are in business, and have to look at themselves as “Joe Realtor, Inc.” That leads to this question: why do you care how much money the Realtor makes if you get what you want? Do you care whether Starbucks is profitable when you pay $3.00 for a latte, or do you just care that you get what you ordered? That sounds a little like me saying “Don’t read, just sign”, but the fact is that the market determines compensation, and its as unlikely that you can tell an experienced Realtor who makes a lot of money that he has to lower his commission because he’s already earned enough this year as it is that you’d tell a newbie that you’ll pay full pull because they’ve never made a sale and need the money.

    And that, of course, is where I’m going when I wonder how someone figures they’ve saved money by paying their listing agent a discount while paying their adversary’s agent the full pull. I’m sure it can work, but why not just pay 7% and 2.5%, but offer the selling agent 80% of that and have him work as a sub-agent of the listing agent? It seems crazy to me that you’d limit your own agency representation while paying the buyer to have full agency representation. One side has a completely paid pro working for them while the other side gets access to MLS. You better hope the Realtor can’t negotiate or recognize value.

  20. Pondering

    Dual income professionals making 400 to 500k in Vancouver? Professional what? There are not many jobs in Vancouver that pay over 150k. Partner’s at law firms, some CEO’s, partner’s at the biggest consulting and accounting firms, some business owners, specialist doctors (not GP’s). I would guess that number would run into the hundreds at most. How many of those are married to another one? That probably chops that down even more. Good on you for being so well off, but I wouldn’t assume that many others are.

  21. jim

    Pondering:
    Top realtors,software sales people,sales managers,managers of hundreds of mid size companies across the lower mainland, my wife an exec at a local company, myself-a sales manager, General manager at a car dealership, contractors, entrepreneurs, money managers. These are just people I know. Sorry.

  22. millionpitfall

    Jim,

    How’s sales this year compared to last?

  23. millionpitfall

    Curious, about the trend of disposable income being spent on vechicles this year. I know the industry has been very good for quite awhile, just wondered if your noticing any changes.

  24. vanreal

    Millionpitfall, Can you even read a chart? I am sorry but how can you make such absurd claims based on that report you linked to. Come on! And as far as buying new vehicles, half of the people lease their cars and just roll over their leases so new car sales don’t mean much anymore.

  25. millionpitfall

    Vanreal,

    Butt out, the question was not directed to you. It was directed to a general manager of a car dealership.

    If you don’t like what I post don’t read it.

  26. levi

    Vanreal,

    How old are you and what do you do for a living?

    At least Million contributes to the blog whether you agree or not, your contribution seems to be nothing more than saying how wrong everyone else is in 1 to 4 sentences.

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