NAR 800K Might Be Coming

Blood Moon, aka, Hunter's Moon

A month ago, I read this depressing story on the Interwebs and it’s stuck with me since. Gary Shilling, the author, runs a research service for which one would pay a presumably hefty premium — I don’t subscribe to it, so I’m going simply on what’s on that website.

His conclusion is that housing prices will drop another 20% from today’s levels:

This huge and growing surplus inventory of houses will probably depress prices considerably from here, perhaps another 20% over the next several years. That would bring the total decline from the first quarter 2006 peak to 42%.

This may sound like a lot, but it would return single-family house prices, corrected for general inflation and also for the tendency of houses to increase in size over time, back to the flat trend that has held since 1890 ( Chart 26).

We are strong believers in reversions to the mean, especially when it has held for over a century and through so many huge changes in the economy in those years—two world wars and the 1930s Depression, the leap in government regulation and involvement in the economy, the economic transformation from an agricultural base to manufacturing and then to services, the post- World War II population shift from cities to suburbs, the western and southern transfer of population and economic strength, the movement from renting to homeownership and the accompanying spreading of mortgage financing, etc.

Seems to me that Gary Shilling runs a market research firm and normally gets paid for his analysis and opinions. They’re worth paying attention to, maybe. And the data, the charts, and the conclusion are pretty devastating and difficult to refute. Go read the whole thing; it might depress you a bit, but there’s some really good information and analysis there.

What I started wondering is, what would be some of the impact to the industry should Shilling’s predictions come to pass?

Is there a Correlation Between Home Price and Number of Real Estate Agents?

The first question I have is whether there is a strong correlation between home price and the number of people working as real estate agents. I’m not enough of a statistician to say with certainty, but there is no question that the Bubble led to a whole lot of people coming into the industry. I’m using NAR membership figures as shorthand for real estate agents, although I know that’s not the same thing.

The Bubble probably started in earnest in 2000, based on this graphic here:

One could argue that 1999 was when things started to heat up. The Bubble reached the peak in Q2 of 2006, and has been falling precipitously ever since. Well, here’s NAR’s membership count from 1980 to present:

NAR Membership, 1980 - 2010

There was a bump in the mid-80’s to over 800K REALTORS, but numbers fell back below 730k in the 90’s… until 1999 and 2000 came along, and zoom! As you can see, we are currently way over the historical 30-year mean for NAR membership at 1.08 million or so REALTORS.

So let’s say there is a correlation between home price and number of real estate agents. If Shilling is right, and we’re headed to a 20% drop in home prices from their current levels, where might we end up? The October median home price came in at $170,500, down 0.9% from October of 2009, according to NAR. A further 20% drop from here means the median home price could be $136,400. The last time the media home price was $136K? That would be the year 2000, when the bubble first started to appear. And at the end of 2000, NAR’s membership was 766,560.

How Many Parts of Real Estate Industry Rely On This Number?

For the sake of discussion, let’s pretend that we’ll have a one-to-one correlation: 2000-level prices = 2000-level agent count. Some 200,000 people will be leaving the real estate industry (actual number larger, since REALTOR is not same as licensee). Without thinking too hard about it… who will this impact, and how?

Agents: In theory, those who remain should benefit from the decrease in competition. In practice… it’s unclear. Who after all would leave real estate? The part-timers who are doing it just for some extra cash, who are not relying on real estate to pay the bills, aren’t going to be affected that much by the drop in housing. The elite top 5% or so can probably just tighten their belts some and make do with making 600K a year instead of 800K a year. The ones in the middle, those for whom real estate is a career, who are relying on it to pay the bills, might have to reconsider. Who knows what that will do?

Brokerages: Anyone with overhead tied to number of agents (e.g., office space) or operating on thin margins premised upon recruiting a large number to agents is going to be in a world of hurt. 20% drop in bodies, coupled to 20% drop in prices, and an unknown drop in transaction volume should all lead to existential crises for some brokerages. The high-split, high-service, boutique brokerages might really benefit, however.

Franchises: There’s probably enough competition out there (no one has more than maybe 25% of the total agent market) that going from 1m to 800K in the target market shouldn’t hurt franchises too badly. However… as some of the franchisees start to feel the pain, the royalty fees and other payments to Corporate will be looked at very closely. This is the segment where I think the biggest “What have you done for me lately?” effect will be.

Associations & MLS: No further comment. Another 20% drop in membership = 20% drop in revenues. Ancillary revenues might help, but most of those also rely on there being a large subscriber base.

Vendors: Almost every single one I know of depends on a low-price, high-volume, recurring-subscription model. The big national websites will almost certainly feel the pain if 20% of their possible subscriber market disappears. Some of the other vendors, whether CRM suppliers, website makers, data providers, or sign makers will face tough choices: raise prices in a down market to make up for unit loss, or cut costs dramatically, or cut profits. Quite a few companies will have to close their doors if this 20% down scenario becomes reality.

This is just off the top of my head, without real analysis or thought put into it. I may have to get around to doing that.

But here’s the real question for everyone in the industry: Are you prepared?

We all hope, myself included, that none of this comes to pass. We hope that things will turn around, that employment picture will improve, that we’ll avoid all of the possible pitfalls trying to dig out of the hole we’re in as a nation, and that 2011 and 2012 will be marked by a return to the recent normal. But hope is not a strategy.

Things look bad enough that it might be time to do like the survivalists: hope for the best, but prepare for the worst. Pray that things will never get that bad, but stock up on food, ammo, and medicine.

Oh by the way, Shilling’s 20%? That might be conservative:

Furthermore, our forecast of another 20% fall in house prices may be conservative. Prices may well end up back on their long- term trendline (Chart 26), but fall below in the meanwhile. Just as they way overshot the trend on the way up, they may do so on the way down, as is often the case in cycles. Furthermore, another big house price decline will spike delinquencies and foreclosures leading to more REO sales by lenders,which will further depress prices. Our analysis indicates that a further 20% drop in prices will push the number of homeowners who are under water from 23% to 40%, resulting in more strategic defaults, more REO, etc.


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Rob Hahn

Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

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44 thoughts on “NAR 800K Might Be Coming”

  1. Irrespective of what happens in the future – the correction should be a wake-up call for the industry. The old models will not make good business sense as things continue to move towards a more Internet driven business. Cost-cutting and steamlining will be paramount for survival. The innovative and creative will capture more and more marketshare.

    As far as 20% more to go on the downside – let’s remember, real estate and its valuations are local. It’s tough to put the whole country in the same pool.


    Brian Hickey

  2. Rob,

    You ask “whether there is a strong correlation between home price and the number of people working as real estate agents.” While price is a primary factor heavily into an agents commission income, I think number of agents is more closely tied to the number of available sales per agent.
    Back in 2008 we did the math for our book SHIFT ( from page 285).

    When you have a lot of transactions and fewer agents as in, say 1999, people look up and say, “I could do that!” As you know, the barrier to entry in real estate is not steep. If you have a laptop, a phone, and $1,500 for a few weeks of intense classes, you can get into the business. So we saw an five or six year cycle of new agents joining the business.

    The problem we saw is that people were still pouring into the industry for at least two years after the market had shifted which further drove down the available business per agent. That’s the height of competition and, as a result, there isn’t enough to go around. We all know people who were and are fighting to stay in the business.

    With sales down and prices too, I believe we’ll see more and more leave the business until we can find equilibrium again. And when the market shifts back towards a sellers market, the committed agents that should benefit from from a lot of available business with less competition until the cycle starts again.

    The biggest group impacted by a further drop will be home owners. With so many already underwater, another big drop could really be devastating if the banks can’t work with agents to make the short sale process more efficient.

    My two cents. Thanks, as always for the thought-provoking posts.

    Jay Papasan

    • Thanks Jay, for a comment that could easily be a blogpost in and of itself 🙂

      I wish I had more historical data — particularly the # of transactions data. I agree that home price is probably not the primary determinant; the # of sales might be.

      The thing I’m most concerned about for the Agent segment is that we’ll have further bifurcation between the part-time hobbyists (who don’t care that they’re doing 1 deal a year) and the Top Producers, and the traditional 80/20 split in real estate will look more like 95/5 when it’s all said and done. Concentration of market power in the hands of the few super-agents.

      The concern is that the next generation of realtors, people who are just now getting their career sort-of going (10-12 transactions/year, fully committed, full-time professionals) might find that they can’t make a living doing real estate. There is this sense that it’ll be the crappy agents who leave the business; I rather imagine it’ll be the middle-of-the-road agents who will be….

  3. Damn. Like part of Jay’s point, I wonder what the trend line looks like for available-transactions to # of Agents? In any event, the possible 20% decline in home values = 20% decline in GCI, which equals epic Bad Moon Rising. Thanks for sharing. I think.

  4. Gents,

    We got all our data from If you fish around you can find it all and they even supply it in Excel format. I’d love to see what others can do with it. We’ll update our numbers in January for our Vision Speech and I’ll be happy to share them. There is a lot of real estate brain wattage showing up on this blog and I’d be curious to see if y’all identify other trends.

    I briefly got access to our transactional data over a long period of time (I was basically basically looking over the DBA’s shoulder) and we ran some calculation. The 80-20 rule didn’t quite pan out…What stood out was that the top 10% of agents do more than 50% of the business (54% I think). Because of our profit share system, which is audited by the third party annually BTW, we have some of the best transactional data in the industry. And given our model…we believe in training and attract new agents as well as courting some plenty of heavy weights (Chris Heller, Kristan Cole, Ben Kinney, Joe Rothschild, etc) I’d wager our data is pretty representative of the industry.

    Conslusions: Top agents get the lion’s share of the business and they earn it. And there are a lot of part-time professionals in our industry. #fact. And I don’t think that’s all bad.

    Real estate has traditionally been a wonderful second household income. That’s one reason our industry is so attractive–you can work as little or as much as you like and, for the most part, your income reflects your effort and training. Case in point, my wife. She’s a mom first, realtor second. She works from 9am to 2pm (and she hits is hard in the time she has!) and she’s bringing home a great second income for our family. She attends a lot of training, practices her scripts and dialogues weekly and is dedicated to service. She’s on pace to earn 90K+ GCI in her first full year. How many industries offer that kind of life balance and financial opportunity?

    Still, that means that the full time professional and primary income earner has to be at the top of his/her game to succeed in this kind of market. Actually, per Joe’s remark, we’ve collected lots and lots of data on folks who’ve both grown their market share, GCI and net profit in this market. Bottom line: Agents who are will to commit to 2-4 hours of lead generation a day, who have mastered scripts and dialogues to guide buyers and seller to their best options (whether that’s to buy/sell or wait) and then who deliver top notch service can and are not just surviving this epic market shift–they are thriving in it. That was the whole point of our book and we spent three years in the trenched with top agents documenting best practices.

    Probably the most inspiring stat we gathered was this: businesses that gain market share in a down market, rarely give it back when the market shifts. Those that lose market share face a steep hill to earn it back. Joe’s comment nails the idea that this market is a huge opportunity for the professionals willing to do what it takes to move forward…..I’ll get off my soap box now!

    Jay P.

    • I got to poke some major holes in your Top 10% of agents. First is that they are rainmakers pushing buyers to their team and keeping listings in their name. This bumps their numbers up no matter how you slice them.

      Secondly, we are in the unusual era of REO agents with 200+ listings. These folks will be in hurting status when the REO market slows down or hits any hickups (say robo signing) along the way. Granted the forecast is they’ll be busy for a long time.

      I bet everyone of those Top 10% are in one of these two camps.

      My point is one group captures the listings coming in while sending buyer leads to others. The other group has a steady supply of listings as long as they don’t screw up. This is significantly different from what regular agents who start from zero every morning face.

    • Jay, I would love, love, love to get my hands on some of that data for purpose of analysis. I won’t make it public without your permission….

      BTW, re: your wife… 9am to 2pm, I’m guessing, is only part of the workday for her. I’m also going to guess that she’s putting in some hours after the kids are safely ensconced in bed, and on weekends and such. Even so, because real estate is a second income, rather than the primary income, she’ll be able to deal with any drop in prices, transactions, etc. If she were the sole earner, however… the Shilling scenario is going to be a problem.

      I do agree that those companies who make smart investments during the downtimes usually emerge dominant at the end of the cycle. As I say, when things are bad, it’s time to indulge the sin of greed, rather than natural fear.

  5. @ Jay, Ken, & Rob – I think we’re all expecting the market to once again SHIFT to a normal seller’s market, but I don’t get the feeling that’s going to happen for a long, long time. We’ve all been climbing a house of cards for decades, one built on easy credit that is not going to return, and inflated home values that also won’t be coming back any time soon.

    What if the home equity growth of the last 40 years was an aberration, one that doesn’t start over again for another 20 years or more (or ever again!).

    What everyone’s missing is that an additional 20% decline in home prices does not directly translate into a 20% reduction in GCI. It will be substantially higher than that because the further drop in home prices is going to make it almost impossible for most sellers to sell their home. This translates to an even further drop in sales per agent, and a dramatic decrease in GCI. If homes can’t be sold, agents can’t be paid. It’s that simple.

    Speeding up the short sale process also means nothing if buyers aren’t able to obtain mortgages to buy those short sales. Right now the buyer pool is pitiful, since most who want to purchase either don’t have the credit or can’t come up with 20% down. Again, a further drop in home values will shrink the buyer pool again since you’ll lose all the move-up buyers who now have no equity in their current home, and not enough savings to come up with a down payment for the next one. Unfortunately, the game of “buy a home and trade up every 5-10 years for a bigger one based on home equity gains” is over for quite some time.

    The sad part is the traditional brokerages, and I include Keller Williams and ReMax in this group, continue to play the game of adding any agent they can in a game of “who has the most agents”, aiming to attract them with expensive retail office space. Most of these offices are like ghost towns when you walk in, making you wonder what’s the point of having all this high-end space when no one goes there. Keller Williams is adding agents like crazy in Northeast Ohio, but if you do some basic math based on MLS production it doesn’t look like they’re bringing in enough GCI to pay the light bill or rent, let alone pay profit-sharing. I think they’re playing the age-old brokerage game of add as many agents as you can and the money will pour in when the market soars again, but I don’t get the feeling it’s going to SHIFT to the upside in time to cover the losses, particularly if prices drop another 20% from here. Time will tell.

    Overlooking the effect of a further 20% (or more!) drop in home prices may be the biggest error the traditional brokerage makes, particularly those, and I won’ t mention any names (KW), who are adding agents willy-nilly in an effort to win the “who’s biggest” competition. Where will the traditional brokerage be, with the typical high-end office and support staff, if GCI drops 40% to 50% from this point? Those are the metrics they should be running. Unfortunately, I can imagine when they meet to sell a franchise, the metrics look more like the usual chart of “here’s where you’ll be when the market grows another 20%”. I don’t want to be the one holding that bag!

  6. As a former association manager, I want to thank you for your insight. A couple of thoughts from my perspective: most associations derive about 80% of their income from dues (the number of members). This means that 80% of the income depends on member numbers, which are not under the association’s control. Not a healthy economic reality. But I knew this fact–the one you mention that I need to think more about is, who are the people who are bailing out? Likely it’s the middle segment–those who need to make a living in real estate sales, not the high producers or the retirees needing a place to drink coffee while the wife vacuums. The question that becomes important to the association is, ‘What are our current demographics?’ And the strategic question: ‘for whom are we designing our products and services?’ The remaining top 10+ %? Or the less motivated and productive members who gather around the office coffee pot?These are profound questions for Realtor associations and MLS organizations.

    Judith Lindenau

    • Judith
      As usual you ask the important question for us as AE’s. It has to start at the top of the REALTOR model. NAR is built on numbers which floats down to the state and local having the same model based on number of members to share the cost of service. Each member pays the same regardless of the service. Most of our vendor contracts are all based on the “number” of members rather than providing a service. I know in our our associaiton of 1000 to 1100 members our services are around 20% of the members who represent “active” involvement. Those who participate on committee, call in regularly for questions or service and attend our class offerings and events. However, the “silent” majority of 80% we never come in contact with because they are not using the “services” or are truly not very active.

      Our decrease in membership, about 20% since 2006, has been primarily the “retiring” second timers(those who had successful or mediocre second careers in RE) or those who never made it in the first place. Our core member is the ones who have been in the business 10 to 25 + years. Interestingly enough, they would are the ones who tell you to “Raise the Dues” and have less of us dividing the business.
      The next few years may actually find us doing that. When every is clamoring to pay less, it may be time for Associations and Brokerages to provide the best service possible and let the true professional support the true business model. It may make the industry improve and most importantly the consumer may be the one to benefit from havin their choice of the best, professional service from a select number of agents and brokers to choose from rather than the idea of who can pay the “reasonable” fee.

    • Better for whom, Russ? For the Realtor, the second scenario. For the MLS/Association, the first scenario (right now). For Brokerages, the first scenario (imagine the splits the 100 sides per year agents would demand). And so on.

      • Working Agent – good

        Broker – could be good or bad, professionalism up, lower costs, if they make their money on office and franchise fees maybe not so good

        MLS/Assoc – not so good under current models

        Consumer – good, more profesisonal realtor, probably lower commissions since we could make it up in volume

    • Hi Russ! It sounds good on paper, but if that were the case, the number of sides would probably scale in the same way. It would be more like 1,000,000 sides per year / 100,000 Realtors = still only 10 sides per agent per year. It would also likely be at a much lower average sell price, resulting in even lower GCI per agent.

      A substantial decrease in agents would also result in many real estate companies going under, particularly those depending on franchise fee payments and large agent counts to support the traditional overhead.

      You could say goodbye to the MLS systems, the NAR, etc. These are all essentially associations that thrive and depend on collecting dues from large numbers of agents. Our local MLS is already selling our data out to the likes of Zillow and Trulia in an effort to generate more revenue. Plus, the constant advertisements pitched to me via email by the NAR makes me feel like I’m back at ReMax again, where the broker was constantly trying to sell me something!

      The sad truth is that we’re all choking on a system that depends on large numbers of agents, and no one seems to be preparing for what would happen if that count suddenly shrank. They all just keep on lumbering forward with the same broken system, toasting with Kool-Aide filled glasses to the cheer of “we’re the biggest” or “we have the most agents”!

      • Not sure why the number of sides goes down. The number of sales per year has been pretty consistent over the years – even when there was half the number of Realtors out there.

        As to your argument about making money off of Trulia, Zillow (dare I say I disagree – they don’t pay for it. And brokers have been flooding the internet with their listings sending them indiscriminately to anyone who would take them. That is why there are companies like ListHub and Point2 – they are the ones making the money off of the listings, not so much the MLS.

      • @Russ – it’s a direct correlation, and you have to read Rob’s article and all the comments to get my point. If the market corrects another 20% or more from here, it will directly effect the number of homes sold since a huge number of wannabee sellers will have no equity, and selling will no longer be an option. This also shrinks the buyer pool even more, since the move-up buyers will be gone. The only reason the number of agents would dramatically shrink, would be as a result of much lower sales numbers.

        20% or more drop from here = no more equity = no more sellers = substantially less commission for agents = less agents = no more mega-brokerage companies = less MLS systems

        As I also mentioned, many people smarter than me have written articles on how the last 30 to 40 years may have been an aberration that will not occur again for a long, long time. We may have a long way down to go before we get to any meaningful bottoming point, and the result would be more than ugly for our industry.

        As far as the MLS making money off feeding data, I did make a mistake. It is CoreLogic that is paying our MLS for data. We just received an email from our MLS proudly stating how they are now actively feeding our data to,,,, and YahooRealEstate, and selling closed data to CoreLogic. As I’ve pondered on the blog before, this seems to be a boneheaded move. The MLS systems are digging their own grave by giving their data to future competitors. All it takes is someone with deep pockets, as in Google, to buy Zillow or Trulia or both, and they instantly have the basis for a national MLS system. They could charge the agents as little as $100 to $200 per year to participate in a co-broke commission agreement, and the local MLS systems and the NAR would be obsolete. The agents wouldn’t need to be members of the NAR, since they wouldn’t need the local MLS, and the hundreds and hundreds of redundant local MLS systems would disappear. On top of it, the agents would save around$700 per year in MLS and NAR dues.

        This is one possible direct result of the situation you suggested where going to only 100,000 agents appears to be a good thing. With such a small number of agents, you don’t need hundreds of individual MLS systems. One basic national system would suffice, and make it much easier to refer clients to out-of-town agents, etc. Particularly since all the mega-brokerages would be gone.

        Interesting times indeed!

  7. There is definitely a correlation between both volume sales and unit sales relative to the number of real estate agents. This is understandable when you consider unit and volume both have their impact on GCI.

    I also think there is a correlation relative to supply and demand dynamics. A heavily weighted buyers market appears to suppress the number of agents, while a heavily weighted sellers market seems to invite more agents into the business. This is perhaps due to the likelihood that the buyer side workload does not change as much as the seller side workload subsequent to a significant shift in supply demand balance. (Note workload includes human effort, marketing expenses, negotiating, post inspection renegotiating, etc.)

    While the business operations of those of us who serve real estate agents is challenged by their declining numbers, on all other counts fewer agents has been good for the industry. One sad aspect of declining agents and brokers is those who survive didn’t get to pick those who leave. There are a number of highly professional and productive agents who have exited the business. And there are some who remain…(well, I need say no more on that).

    As to another 20% or more decline in home prices, I don’t see it happening absent a new cataclysmic event being added to our current mix.

    • Good point on the supply/demand dynamics, Mark… really good food for thought there.

      As for whether the 20% decline is or is not realistic… I don’t know… I hope it isn’t, but Shilling makes a pretty compelling case. There is no reasonable prospect that employment numbers will improve at all in 2011/2012 — if anything, things like QE2 are causing the financial markets to go topsy-turvy. The huge undigested shadow inventory numbers are scary — and those aren’t “new cataclysmic”, but existing cataclysmic events.

      Throw in the obviously true observations about lending standards being tightened, the past-due mortgage numbers climbing, number of REO’s climbing, and critically, the lower rates of household formation… and well, I wish I had some way of refuting Shilling’s predictions.

      The really compelling argument is that housing prices will revert to the mean. We’re still above the historical trend line that has held for over a hundred years. Unless one is going to argue that something truly fundamental has changed, where a new trendline must be established, it’s difficult to resist the argument that prices will ultimately stabilize around that historical mean trend.

      And we haven’t touched what federal government could do to screw with things. Mortgage interest deduction, diverting money from Fannie/Freddie, emphasizing rentals, etc. etc. are all very much on the table right now. I wonder if 20% is in fact too conservative.

  8. Rob,

    Great post. I wonder how many licensed real estate agents keep their licenses current but drop out of NAR? Then the drop in NAR members would not correlate to the number of agents.

    I wonder if there is an easy way to find out the number of agents. I know MA has an online DB of all licensees. If only the allowed us to easily get a count of licensees in the entire state.



  9. We’ve done internal analysis with Twin Cities data comparing a host of market metrics to our MAAR membership numbers. The metric with the highest correlation and predictive power wasn’t home prices, but rather the total dollar volume of sales, which incorporates both sales prices and number of transactions. In other words, the total pie of available monies from which commissions are derived by the real estate community.

    The big picture truth remains that it is exceedingly cheap and easy to start a real estate career. Barriers to entry for an individual agent are practically non-existent when compared to other potential entrepeneurial activities. That’s why I believe the decline in agents won’t necessarily be as dramatic as some anticipate. There will be a drop, certainly (there already has been from 2006 levels), but I’m not sure we’re due for apcalypse. Part-timers can hold on relatively easily on even 2 sales a year if they have other income.

    Regardless, MLSs and associations have to be prepared for declines and the model needs serious re-examination. This has been true, however, since before the recent downturn.

    • Jeff – have you guys done any sort of analysis on who is actually leaving the business since the downturn began? I’m hypothesizing that the part-timers and the ppl doing 0-2 deals a year are going to be fine no matter the market, because they’re not relying on RE to pay their living expenses. Also theorizing that the high-end who are really productive (say… 150k+ in personal GCI) will be okay with some belt-tightening.

      If you guys have run any analysis on the demographics of those exiting the business vs. the demographics of those who are staying on, that could be really interesting stuff.

  10. Rob,

    As far as being “Prepared” for this market there are, what I feel, 3 target markets that agents and brokers need to master. 1st is the Distressed property market. When I speak of that I am leaning more towards short sales than REO’s. There is great education out there for those who want to learn and it can completely change their business, stabilize their local market quicker, and help people in the process. Win-Win-Win. 2nd is the investor market(Primarily 1st time investors). As prices decline and more consumers are shut out of financing and need to turn to rentals this market will become a hot area to focus on. It does however take time and the right training to master this market (Which is why many agents don’t do it -it’s hard work). 3rd is first time home buyers. The emphasis here is providing real value to this market with specific messages and value propositions directed right at them. Serious early screening needs to be done as well because many buyers will not have the Desire, Need, and Ability required to make it happen.

    Bottom line is that with any of these options any agent will have to take on obtaining this knowledge and implementing it at a high level. A complete transformation of their business. As you can guess most won’t take on the challenge.

    Personally, 2010 has been a significant improvement over 2009 because I took on the Short Sale process at a high level and it has kept my business steady and profitable without all the usual seasonal dips we experience in our industry. From where I stand, meeting with distressed homeowners, it is more than likely that another 20% drop in values is more than realistic. We haven’t come close to clearing out all the distressed inventory and that will keep pushing prices down until it’s under 3%. In addition we still have the option ARM resets scheduled for mid 2011 which will trigger another round of defaults that could make one long for the days of the sub-prime tsunami.

  11. I am a relative new-comer to the industry and a small fish, but I look at some of these analytics and have questions I would like you all to factor in. So, first question:
    1. What is the correlation of Realtor membership to electronic MLS access?
    The propagation of electronic records changed the MLS dynamic. My mother worked in a real estate office in the late 70’s. We always had the books around the house, while she researched for the agents. These days, she would need MLS access. And current technology is allowing MLSes to better monitor that electronic access, which could result, if not in an increase of membership, at least a holding action against a large volume of loss.
    Yesterday, I had a member submit an access agreement for an assistant to share his account access. It took me three minutes to determine that the assistant was licensed and should have been a subscribing member and Association member. This was not an easy task for a small Association owned MLS pre-2k to check.
    2. The Realtor model is shifting. Does the model of a real estate agent from the 80’s or 90’s apply today?
    Where an individual agent would be the primary in transactions, now teams are starting to be the standard. Many of these teams are top producers and will last the storm and prosper. Where a successful individual agent might close x number of transactions and earn a top living working hard to market and maintain and develop their client base, the teams model is creating a comfortable living for a group of individuals who are sharing responsibilities and resources. This creates a newer model and keeps MLS subscriber rates up.
    3. MLS will have to adapt their models as vendors have. Is access/subscription restricted to the current definitions or to anyone accessing the MLS data? (And, how will DOJ jump into any changes in subscriber definitions?) Will MLSes adjust their rules regarding how licensed/unlicensed assistants and staff members access the MLS?
    MLS should be the go to source for the most accurate and timely information regarding the local real estate market. As such, every individual accessing the data is profiting from access and should therefore reimburse for access to a compiled, indexed source of information that is part of their business. MLSes spend money to provide these resources and vendors grow and develop to meet the needs of this population, reimbursement is key to growth and development. Hypothetical scenario: I go out and get my license, join my Association/MLS. I pay my dues/fees/etc. I then hire four or five people from sales, marketing, and technology industries to form my team. Not a one is a licensed agent. But I register them all as staff or assistants. We run a five person operation with reduced costs due to MLS fee structures…. Hmmm. How is that going to work?

    So, to steal a famous saying, history will teach us nothing. Not without factoring a lot of these new elements in. I am very interested in this conversation and, hey, I may be way off base, but… any of that make a difference?

    • Mike – The team model is definitely trendy, but in no way the standard. Despite what you hear from the KW clan, ReMax was the first to push the team concept, but mainly to keep agents from leaving. As soon as an agent wasn’t performing well enough to pay their monthly fee to the broker, they would suggest they join a team and become a buyer’s agent. It all sounded great, but it was mainly so the team leader could not be stuck paying the under-performing agent’s fee, and this would keep the agent from leaving.

      Many people are starting teams, but very rarely are they run as they should be, and as described in KW’s “Millionaire Real Estate Agent” book. I’ve seen many teams come and go, and usually the individual agents on the team are still doing their own book of business and not really acting as a team member. Even in a large market like Cleveland, their are only a very small handful of teams that run under the true MREA structure. Probably less than five that I know about.

  12. I have not gone back to find the stat, so please correct me if I am too far off base. It is something like 80% of buyers buy within 10 miles of their current residence and some 90% of all real estate buyers go to the Internet to start their search for a purchase.

    It seems the probability will be that local stand-alone marketplaces, ones that will provide buyer and seller connection services – most likely at low cost will be the models that could break up the NAR and MLS cartel.

    I’m not sure anyone in the business wants to know just how low those costs could go – but let’s just say they could be low enough to turn the whole industry upside down.


    Brian Hickey

  13. Rob, interesting article especially the reversion to mean. I’m curious if it discussed a specific timeline for the reversion. I’m seeing a lot of data pointing to a housing shortage or under-supply by 2014. Population is still rising and we’re under-building by 1mm units per year. Also even “renter-nation” requires housing which investors would need to provide. I’d love to see how the prices relate to the cost of construction over the last hundred years. For example the cost of shingles has nearly doubled in the last 18 months. So replacement costs are exceeding current price levels in most markets. This, + shortage of new homes being built, due to population growth will result in fast absorption of excess supply. Also household formation is stagnant currently and this will revert back to mean as well. So I’m wondering if the reversion-to-mean will just result in slower price growth until it comes in line (considering inflation), vs a 20% decline. A 20% decline on average could be seen if many of the coast areas continue to drop considerably but recovery is taking hold in many of those markets already (ie; NY).

    • Hey Ryan – I’d like to see you post on the data pointing to housing shortgage by 2014. 🙂 Ray of sunshine, if you will.

      At first blush, I tend to agree with you about population growth, and under-building by 1mm units per year (though I’d like to see the data). Trouble is, if we’re staring at some 5mm units in foreclosure, that’s still five years’ worth of “underbuilding”. Plus, is the U.S. population actually growing? I seem to recall that the US is just at replacement levels of 2.1 birth per woman.

      The Shilling post does point out, however, that family formation is down — way down. And multi-generational households are way up (so grandma, ma, and child all under one roof).

      Finally, on the cost of shingles… is that a supply/demand driven issue, or a sign that we’re living through inflationary times, but with low employment… stagflation anybody?

      The situation is far too complex, and I don’t know that anybody really knows what’s going to happen. But the single biggest issue, I think, the single most important piece of data above all others, has to be employment. As long as official unemployment is around 10% (and unofficial is around 18%), I don’t see housing improving at all.

      • The US porpulation has slowed down some but it’s still in the 1% range or 3 Million per year and some of it is driven by overseas immigration. With a household size of 2.6 this normally means we need 1.15 Million housing units built every year. Now include our existing stock of housing (about 115 M) with many over 30 years old (roughly 70 M). We lose some, say 1% or 700,000 to fire, neglect (Detroit housing), population shifts, conversion, & other issues. So we have a valid annual need of roughly 1.85 Million housing units (including apartments & other rentals).

        Currently, we are seeing evidence of increasing household size as kids stay at home, grandma moves in, people not seperating/divorcing, etc. The primary motivator is economics and I suspect when things recover people will move out over 1-3 years.

        So, what about all of those foreclosures? The first question is how many will be a successful short sale? I just checked the Phoenix MLS and it shows 17,255 completed short sales for 2010 thru Nov 28. This is roughly 40% of the “50,000 looming foreclosure” numbers for Phoenix typically tossed around. Plus foreclosures and short sales will be spread out over 2-3 years. We’ll see these owners become renters and many renters becoming owners in this period.

        New construction of homes, apartments, and rentals is now in the 400,000 range which is substantially below our annual needs.

        Depending on who & what you believe, our economy should start recovering in the 2012-2014 timeframe with lower unemployment. I think housing will follow 6-12 months later.

        Thus we’ll have a 4 year buildup of households wanting to be established or roughly 7.4 Million. We will have built maybe 1.6 Million new units and perhaps 2 Million foreclosures on market or close to it. That leaves a shortage of 3.8 Million after 4 years on a national level that will affect the rental and housing markets.

        It’s going to be interesting to watch how things unfold.

      • Nice explanation, Eric. Thanks! Do you know offhand whether the “50K” number thrown around for Phoenix is widely regarded as accurate? I know some folks (like Jonathan Miller of Miller Samuels) think that the actual number of distressed is some 3-4 times what is quoted from data, because of ‘extend and pretend’ games.

      • Every story that has a number of foreclosures for Phoenix seems to have a different number. These stories never talk about the 20,000 listed short sales (active & under contract) and their impacts on the foreclosure numbers.

        Ditto for loan mods which have a bad rep but they have a 20% to 50% conversion rate.

        Also, when have you seen a story that told you how many foreclosure cancelations were recorded last month. I’ve seen zero mentions of this!

        How can we have a real and honest story about foreclosures when we don’t include three major pieces that are reducing them today?

        The only numbers I can be certain of are: the recorded “Notice of Trustee Sale” (aka foreclosure notice), the actual trustee sale, and cancelations. Also, MLS short sale listings and solds.

        The main question is how many houses are in the extend & pretend game and will they stay there long enough for our economy to recover?

        I do believe we have about 30,000 houses (not including short sales) that are in the last stages of default before foreclosure, in foreclosure, or are bank owned. We still have 1-3 years of having underwater homes (purchase & cash out refis) before things look like they’ll return to normal levels.

  14. Another interesting angle is to look at the annual agent count you cite and cross it by the demographic data NAR puts out in its annual Member Profile. Although the Profiles only give percentages by age brackets, I’ve always been interested in trying to figure out real numbers by age group. So I’ve compared the Profiles to the total member count (also available by year at to get some decent rounded estimates. Just looking at the raw data doesn’t scream out anything that hasn’t already been written before (median age creeping up, total membership decreasing but relatively slowly, no dramatic percentage shifts in any age groups, yada yada yada…) but it became more stark when I grouped some brackets together. In short, here’s what I found when I compared peak (2006 data) to the present in three age groups: the over 55 crowd has held about steady while the 40 to 54 group has gone from +/- 570k to +/- 390k and the under 40 group has gone from +/- 258k to +/- 168k. So while it would seem that all age groups are losing some members, it appears to me at least that the thirtysomethings of 5 years ago left the industry in much larger numbers. That again seems to check with what our gut instincts may tell us but it certainly gives a bit more credence to your argument.

    Sorry if someone brought this up already. This is the kind of data I dig but I just didn’t take the time to read the entire thread…

    • This is made of pure awesome. Thanks Nicolai. It would be interesting to do some sort of an “exit survey” to find out why people left the industry in the past couple of years.

      The Under 40 crowd lost some 35%; the 40-54 crowd lost 32% or so. That’s pretty even on a percentage basis. What we don’t know is what sort of business these people were doing (if any) before they left. The critical question, it seems, is whether those leaving real estate are quitting because they’re not doing any deals (in which case, it’s probably addition by subtraction) or if they were doing deals, but not enough to justify the effort (say the average 6-7 transactions a year).

      And if you lose 35% of the under-40 crowd, what could be the impact in 10 years or so? I don’t know that it would be necessarily negative actually…

      • It’s so much guesswork – only wish I could get more color on the data as I have the same questions (and I agree that losing 35% of any age group may or may not be negative, it all comes down to their production and potential – as a very general, overarching statement: with all else being equal, I’d agree with many who say the industry and consumers would be better off with 800k agents, or even fewer, than with 1.1mm).

        I was thinking of these stats on a long flight last night so I crunched some more data to see if I could dig into the production question (plus I was seated next to a very talkative traveler so I needed to break out the laptop). Using the same kind of crack “analysis” I did before, I went back to the NAR Profiles to see which production group has been most affected by the downturn. From ’06 to ’09, my extrapolations:

        0 transactions group went from +/-149k to +/-134k (10% down)
        1-5 trx group; +/-326k to +/-334k (2% UP)
        6-10 trx; +/-244k to +/-211k (-14%)
        11-15 trx; +/- 190k to +/- 145k (-24%)
        16-20 trx; +/-122k to +/- 89k (-27%)
        21-50 trx; +/- 258k to +/-156k (-40%)
        51+ trx; +/-68k to +/-33k (-51%)

        OK, so the trend seems clear here but again there’s a lot we can only guess at in these numbers (and I have a tough time believing that there are over 30k agents who do more than 51 transactions as we’ve worked on ranking these high-producing agents and teams so I need to dig into that – one thing I believe is that NAR’s members include both agents and agencies since most brokerages are also aligned with NAR and have their own membership agreement; if I’m right there it would seriously skew the #s). But if we take the data and cover our ears to ignore any noise (ignorance is bliss) I’m seeing that the 0-5 transaction crowd has held steady while the solid to very good agents (6-15 transactions) have dropped 18% and the great agents (which probably includes many agencies methinks) is down 38%.

        Which kind of supports the notion that there will always be low producers who aren’t driven in or out by market factors as it’s a part-time gig (or, people like me who get a license so they can get access to data but have never sold a home in their lives). I was just surprised as I thought it would be the “middle” group that got hit harder than the top group (assuming that many “middle” agents would be relegated like a bad soccer team down to the lower division) but I can’t comfortably conclude anything with all the questions I have in the data (but I sort of want to anyway…).

        I could blabber on for a while but I’ll stop while I’m behind. If only we could cross this with the age-bracket assumptions…

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