BAM Key Details:
- The Consumer Federation of America (CFA) has issued a report titled, “A Surfeit of Real Estate Agents,” arguing that agents with five or fewer sales per year are taking 25-30% of commissions income (in three markets) and are the number one threat to the industry.
- In this week’s episode of The Real Word, Byron Lazine and Nicole White weigh in on the report and its shortcomings, the category of “marginal agents,” and why exceptional agents will always rise to the top—regardless of how many sales they close each year.
A new report by nonprofit watchdog Consumer Federation of America (CFA) has made the claim that a “surfeit of real estate agents” is the number one threat to the real estate industry—with dire consequences for full-time, skilled agents and consumers alike.
Using data on three major U.S. markets, CFA argues that “marginal agents,” or those agents with five or fewer sales per year, took an estimated 25-30% of all commission income. And some folks are a bit salty about that.
Per the report, the industry is facing an overpopulation crisis with hordes of less-qualified agents taking deals away from the deserving agents who need them—supposedly more than the agents who succeed in closing them.
Industry experts have noted that this surfeit of agents creates economic inefficiencies, deprives full-time agents of needed income, frustrates both consumers and experienced agents who must deal with inexperienced agents, forces agents to spend inordinate time and money acquiring new customers, reinforces relatively high and uniform commission rates, and damages the reputation of the industry.
But the data behind that argument doesn’t quite hold up under close scrutiny.
No one’s saying there aren’t some agents who jump into the real estate industry for the wrong reasons, but agents who close five or fewer transactions a year are not the enemy.
We’ll get into our doubts regarding CFA’s data, but the report seems overly eager to demonize these “marginal agents,” somehow making them the number one threat facing the industry.
To quote my Gen Z kids, “it’s not that deep.” And neither is this report.
A flawed study
The CFA report claims to use both “old and new data,” but the data pertaining to the three largely middle-class markets studied was not new and certainly not comprehensive.
CFA’s study took a small sample of data from three largely middle-class markets—Minneapolis, Jacksonville, and Albuquerque.
Looking at just 500 consecutive home sales (1,000 sides) between early 2021 and early 2022, the CFA concluded that agents with five or fewer sides per year are taking 25-30% of commissions and are, therefore, the number one threat to the real estate industry.
Here’s the breakdown for each market:
- Minneapolis, MN (early 2021) — Of the 956 sides identified, 267 (27.9%) were repped by agents with five or fewer sides per year (i.e., “marginal agents”).
- Albuquerque, NM (early 2022) — Of the 963 sides identified, 269 (27.5%) were repped by marginal agents.
- Jacksonville, FL (summer 2021) — Of the 953 sides identified, 324 (34%) were repped by marginal agents.
The study also found that marginal agents were just as likely—or nearly as likely—to sell high-priced properties as lower-priced ones.
Based on that data from the above-mentioned three markets, CFA found that agents closing five or fewer sales per year were taking an estimated 25-30% of commission income.
From that, the report concluded that what these “marginal agents” earned from those transactions resulted in “wasted time and money for both agents and consumers.”
In other words, a larger share of those commissions should have gone to full-time agents instead, which the report seems to argue would be better for everyone.
Here’s the thing: In early 2021, they could have taken a snapshot of 500 consecutive sales from pretty much any city in America, when we saw a wave of agents coming into the market. It’s not hard to imagine 25-30% of sales going to agents with five or fewer transactions because, for one thing, there were so many brand new agents.
For another, many consumers in early 2021 were going with the first agent they met. We were in the middle of a health crisis; people weren’t eager to get face-to-face with five new people.
After providing a litany of complaints about so-called “marginal agents,” the CFA report suggests a vague solution:
It raises questions as to whether the industry should make a greater effort to address these issues, primarily by ensuring that new agents have greater commitment and competence.
To be fair, education is certainly an issue.
I think the schooling and the education is the problem. So, how do you inflict more education—valuable education, not the stuff your local boards are putting together? …. That’s how to raise the bar, really raising the education level—not from failed real estate agents or ‘marginal’ real estate agents but from people who can be true educators who know what the heck they’re doing.
(Our answer to that question is to join BAMx and take advantage of the online courses, livestreams, and active Facebook community, full of agents laser-focused on continually educating themselves and providing exceptional value to their clients.)
The real threat to credibility (Hint: it’s not “marginal agents”)
In support of its claims, CFA quotes the 2015 “D.A.N.G.E.R. Report” commissioned by the National Association of Realtors, which detailed 50 threats, challenges, and risks the industry faced.
The number one threat? “Masses of marginal agents destroy reputation.”
A large majority of practicing real estate agents have recently received their license or work part-time. These agents usually charge the same commission rates as experienced, full-time agents yet in general offer worse service and deprive experienced agents of needed clients.
And we get it. Agents who get into the industry for the wrong reasons and who are only minimally invested in being the agents their clients need are definitely an issue.
But the way to correct that issue isn’t to write a report blaming agents with five or fewer deals per year for earning a bigger share of commissions than they supposedly deserve.
It’s for each serious agent to work at building relationships and giving the industry the good name it deserves. Agents who do the bare minimum for each client (however many they have) will either learn to step up or (eventually) fail and leave the industry.
In other words, it’s not how many deals you close per year that matters; it’s the level of service you provide.
And the real threat to the industry isn’t agents with five or fewer deals a year; it’s agents who aren’t invested in giving their clients (however many they have) the best possible experience.
And plenty of full-time agents fit that description.
I’ve spoken to a lot of part-time agents, Nicole, and remember, I took a little turn on the way I look at this…I don’t care if you do five deals a year. If you’re able to execute on those things… and the value that you’re bringing to the experience, then you’re not marginal; you’re exceptional.
Well, because, let’s be honest. I mean, some of these ‘marginal agents’ are better than those that consider themselves full-time.
That’s something both the CFA report and NAR’s “D.A.N.G.E.R. report” seem to forget by focusing on the “large number of part-time, untrained, unethical and/or incompetent agents” taking commissions away from more experienced agents.
Exceptional agents rise to the top—and set the standard
We’re not denying sub-par agents exist; it’s just that top agents are generally too busy and too focused on building relationships and growing their skills to waste time worrying about them.
The “knowledge gap” that “threatens the credibility of the industry” will eventually be the undoing of those agents who don’t bother educating themselves and getting better at what they do. Because no one will want to work with them.
Yet, somehow, even after years of having this “surfeit” of lazy, ignorant and/or unethical agents in the industry, over half of consumers still look to real estate agents for financing advice.
Home buyers and sellers still appreciate a skilled professional who cares about their clients. This is why referrals are so important. And the agents most likely to get those are the ones whose service is so exceptional that clients and fellow professionals are happy to recommend them to others—knowing they won’t be disappointed.