If you have the impression that every other person appears to be a real estate agent these days. The truth of the matter is not quite as it may at first appear!
In fact it is quite likely that by the end of this year you may well know more ex-real estate agents than employed ones. The impact of the slowing property market will hit the employment of agents hard this year with anything up to 3,000 potentially leaving the industry.
The reality is (as I have been told many time by real estate agents) real estate is a simple business, not an easy business.
With low barriers to entry, this industry tends to suck in new aspiring agents as the market grows; and equally contract quite considerably as the market cools. This agility to react to the market is a double edged sword, allowing the industry owners to quickly add agents as contractors whenever they want (or don’t want!) and yet at the same time removing the motivation for training and development so critical in enhancing the professionalism of any industry.
Looking back over the past 7 years shows some interesting statistics on the employment of salespeople in this industry.
At the start of this decade the industry supported some 12,000 salespeople (red line on the graph) who on average attained an estimated average gross income (a simple calculation of total property sales per agent factored for net agent commission) of $22,000 (black line on graph) – interestingly at that time a level below the average income of $24,300 for all working NZ’ers.
The next few years as the property market took off, with sales (blue line on graph) and prices growing at record levels the industry proved a goldmine for those agents already well established – seeing estimated average gross income rise steadily to $47,000 in 2003 coinciding with the peak of sales volume. This income level representing a premium of 70% to the then average income of all working NZ’ers. Not surprisingly then, just as the sales volume hit its peak in that year the industry had already started to attract more and more agents – in 2003: 14,000; 2004: 16,000; 2005: 17,000 and in 2006: 18,000.
As the sales volumes began to drop however average gross income for those in the industry remained at a respectable level of $42,000 for the years 2004 to 2007 as median prices continued to grow, although during this time the average income for all workers rose from $29,000 to $35,000 reducing that once elevated premium of 70% to just 18%.
At the end of last year there were just under 19,000 real estate salespeople in this country, that level of employment is unsustainable as the market continues to soften. The first two months statistics of sales for 2008 show a likely total year sales of 72,000 based on seasonal factors so far. That would see a massive 22% decline in sales volume, this with a potential fall in median prices could see the total sales value of the market fall by upwards of 25% – this flows directly into the income of this industry and the earning potential of agents.
So the question is – what will be the fall out for real estate agents in 2008? – early signs already show a reasonable exodus from the industry potentially of those for whom real estate was not a full time career. Additionally rationalisation, acquisition and liquidation among companies may and will occur. This could all end up with the number of salespeople contracting by up to 3,000 to closer to 16,000 – even then for those left in the industry the estimated average gross income is likely to fall to less than $37,000 – pretty much back to the average workers income.
Whilst this may make gloomy reading for potential new real estate agents, for those that remain in the industry it will provide a much needed opportunity to demonstrate their unique skills and thereby grab a valuable opportunity to improve their position. For as ever with industries with low barriers to entry when the going gets tough the ones that stick it out are the ones who have the right skills and the right attitude to be successful – a position that hopefully will allow this industry to enhance its reputation and professionalism.
(Statistics are drawn from Department of Labour, REINZ, Statistics NZ and Realestate.co.nz own statistics)
Of course the 80/20 rule also has an impact on incomes in real estate – ie 20% of salespeople do 80% of the business. (In fact it is probably becoming more like the 90/10 rule)
At an NZ median price of $350,000 the fee charged would be around $13,000 plus GST. 72,000 sales in 2008 at $13,000 would be $27,529 average income per salesperson assuming 17,000 salespeople and that they get 50% of the total commission with the office taking the other 50%
Ross
In the calculations, I used the average sales value for all properties rather than median price (there is a difference of $45,000 – the avg being $395,000, representing a fall from the current average of $415,000).
As ever when looking at averages in such a large and varied market such as real estate – and as you rightly point out a large portion of the market is managed by a smaller group of highly active and successful real estate agents.
Today’s article on Interest blog by Bernard Hickey adds weight to this post by referencing the future being as tough for mortgage brokers.
Good article thanks Alistair,
Would be interesting to see the median income figure? I don’t have the exact figures but I know that the average salesperson with Barfoot & Thompson pockets significantly more than the NZ average real estate salesperson. As due diligence before choosing a company to work for, prospective new salespeople might benefit from asking their prospective employer what their average salesperson earns.
Also, regarding “the market”, anecdotal evidence in my area suggests this winter won’t be so harsh on prices. It seems potential sellers have been sufficiently spooked by recent negativity. With sellers “expecting” prices to fall we’re finding that appraisals and new listings are drying up quickly. If this trend continues it “might” hold the market up a bit and disappoint the doomsayers.
Steve,
A median figure would be good, but unfortunately impossible to achieve so in this case the average will have to suffice.
Valuable to get your perspective of reading the market on the ground day to day. Clearly there has been intensive media coverage and in someways this may have lead to a conditioning of consumer expectation. Something that may not have been available in the last downturn.
Within Barfoots the 80/20 rule would still apply.
Is this 80/20 rule really true? Has anyone actually done the calculation? Last
year in our company more like 45% of business done by top 20%….
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