By Ryan Johnson
Arizona Daily Wildcat
Thursday, October 13, 2005
"How many of you want to go to into real estate?" the English-accented professor asked one regional development course on the first day of class this semester. About half the hands went up.
Warning, warning regional development majors: listen up. You're about to go into an overcrowded field that has over the last two years become much more so. You're going into a field with bleak future growth prospects, and you're going into a field that is gradually being replaced by technology.
It's easy to see why so many would want to become real estate agents. Put up a sign, wait for buyers and collect a fat three percent commission on the sale. With the average house in Tucson selling for about $200,000, that's about $6,000 from the sale, which could be as little as a week's work.
Moreover, becoming a real estate agent is about as difficult as getting a driver's license. All it takes is three weeks of courses at a real estate school and passing an easy state exam. Some students do it over winter break.
With the hot market, it isn't at all uncommon for realtors to be making more than $100,000 a year, and the average income was $53,000 as long ago as 2002. That's why, combined with the torrid recent pace of real estate, the number of real estate agents has exploded. In just the last year the number of agents who are members of the National Association of Realtors has climbed 12.7 percent to 1.2 million.
Worse still, do you know the state with the biggest one-year jump in number of realtors? You guessed it - Arizona, with a spike of 18.4 percent.
An expanding workforce might not be such a bad thing, but when that's combined with decreasing demand for those workers, it's bad news. The real estate market is about to cool down considerably. Turnover is already lower than earlier this year.
Besides, homebuyers and sellers are starting to see how little real estate agents do. Other than provide basic information (information that, as real estate agents become more obsolete, will be provided on a consulting basis for much less than it is now), realtors merely fill out forms and occasionally handle basic tasks such as setting up appointments and negotiating.
The only real value they add is the ability to place homes on the multiple listing service (MLS), the repository of real estate market listings. And real estate agents are already beginning to feel the effects of that great enabler for consumers - the Internet.
Now there's Craig's List, for sale by owner sites and just plain old signs. And if a seller must get on MLS, there are agents who are so desperate for listings that they'll place a house on MLS for $500 or less. And be happy to get the listing. In fact, expect more agents to do this, with prices even lower.
The typical commission a seller could expect to pay when selling a house in the past was 3 to 6 percent for the selling agent and three percent for the buying agent. Some companies try to charge as much as seven percent. However, now the average commission is closer to 5 percent. But it should go much lower. And it's never going higher.
Currently, some buyers become real estate agents just to get the 3 percent commission whenever they buy a house. When the incentives are that perverse, clearly commissions will need to come down.
In Europe, it's already happening. The average commission there has fallen to about 3 percent. But expect even that to drop further.
Real estate agents counter that commissions will come back up. In some states, they've succeeded in implementing "minimum service" laws, which in effect force real estate agents to charge 6 percent.
But when an industry has to resort to convincing politicians to give it a monopoly, it's clear that its day has passed. Of first-year real estate agents, four out of five don't continue.
It's probably going to be disappointing for most of the students who raised their hands in the regional development class.
The only ones who will succeed are the most charismatic ones, the ones who will be good salesmen. The rest, well, might consider an alternative.
Ryan Johnson is a senior majoring in economics and international studies. He can be reached at email@example.com.