Although I just published a lengthy VIP post about the Opendoor/IPOB investor call, there was something in that presentation that didn’t really fit that post. It’s also of wider interest, so I thought I would write about that here.
It’s about how the incumbents in real estate, according to Eric Wu and Opendoor, are highly fragmented despite presiding over a $1.6 trillion annual market in real estate. Here’s the slide he used:
Those are some big numbers. Plus, there’s that super-tantalizing “28% of realtors have another occupation” line. (Though I think he means “real estate agents” since there are only 1.4 million dues-paying REALTORS, and ARELLO estimates 2 million licensees, according to NAR.)
But let’s do a quick thought experiment here.
Fragmentation is Not the Story; Concentration Is
First of all, we need to massage the Opendoor numbers some, because they don’t quite add up.
I plugged the numbers into a spreadsheet and here’s what we get, based on 2 million licensees:
- 66% = 1,320,000 licensees doing 0-15 transactions per year
- 31% = 620,000 licensees doing 15-50 transactions per year
- 4% = 80,000 licensees doing 50+ transactions per year
Yes, that adds up to 101%, but close enough. The bigger issue is that if we assume minimums for all three groups (66% do 1 transaction side per year, 31% do 15, 4% do 50) we get to 14.62 million transaction sides… and NAR tells us that in 2019 there were only 5.34 million transactions, or 10.68 million transaction sides. Just the 31% and the 4% get us to 13.4 million sides… so that’s a problem.
But Statista says there were 6 million transactions in 2019… maybe by counting new home sales? So that’s 12 million sides. Still more than 2 million transaction sides unaccounted for… but closer.
But let’s skip over that issue for now. The deal is that the 4% doing 50+ transactions are at 4 million sides all by themselves, if we limit the actual number to the minimum 50 transaction sides per year. That’s 40% of the entire market already. Since many of those 4% are going to be doing more than 50 transactions per year, we’re talking about over 40% of all transactions going through a mere 80,000 real estate agents.
The real story here doesn’t seem like fragmentation to me, but concentration. Just 80,000 agents are responsible for over 40% of the transactions. Add in the 31% who do 15-50 transactions, and we’re over the total number of transaction sides in the U.S. Which doesn’t make sense, so…
To make it make sense, I made some changes. First, I used the larger Statista number of 6 million transactions, or 12 million sides. Second, I had to alter the percentages to make it kinda sorta fit:
| % of Agents | # of Agents | Trans/Agent | Total Trans | Market Share | |
| 0-15 transactions | 71.5% | 1,430,000 | 0.50 | 715,000 | 6% |
| 15-50 transactions | 24.5% | 490,000 | 15 | 7,350,000 | 61% |
| 50+ transactions | 4.0% | 80,000 | 50 | 4,000,000 | 33% |
| 100% | 12,065,000 |
The Thought Experiment
So with that base, let’s run the thought experiment.
What happens when the 4% of the 50+ agents get even more productive because of technology?
Alternatively, what happens when some of the 31% who do 15-50 transactions get more productive because of technology and join the ranks of the 4%?
The impact is amazing. This first one is moving the 4%to 6%, but holding everything else the same. It’s basically saying that some number of the 15-50 transactions agents get more productive and join the ranks of the 50+.
| % of Agents | # of Agents | Trans/Agent | Total Trans | Market Share | |
| 0-15 transactions | 76.5% | 1,530,000 | 0.50 | 765,000 | 6% |
| 15-50 transactions | 17.5% | 350,000 | 15 | 5,250,000 | 44% |
| 50+ transactions | 6.0% | 120,000 | 50 | 6,000,000 | 50% |
| 100% | 12,015,000 |
Even on the larger Statista numbers, that implies one, that 120K agents can do half of all of the transactions in the U.S., and two, the sacrifices have to come from the middle tier because the lower tier simply don’t do enough business to really move the needle. You could set the lower tier to 0 transactions, and you’d still have to reduce the % of the middle tier dramatically.
What if we say that the top tier just gets 10% more productive? Set that number to 55?
| % of Agents | # of Agents | Trans/Agent | Total Trans | Market Share | |
| 0-15 transactions | 73.0% | 1,460,000 | 0.50 | 730,000 | 6% |
| 15-50 transactions | 23.0% | 460,000 | 15 | 6,900,000 | 58% |
| 50+ transactions | 4.0% | 80,000 | 55 | 4,400,000 | 37% |
| 100% | 12,030,000 |
30,000 mid-tier agents have now been pushed into the lower tier.
Yeah, I know… these are really bad assumptions and the numbers don’t make much sense, and it’s hardly scientific. I totally get that.
But even with this, you can start to think about the impact of productivity technology like the ones that all of the franchises and brokerages are touting today. (See, e.g., RE/MAX and Keller Williams.)
Final chart for shits and giggles. Say that productivity tools and improved marketing get the 50+ crowd to 10% of the population. Also say that somehow, you drive all of the lower tier, including the 28% who are part-timers, out of the industry entirely — the wet dream of the Raise the Bar crowd. Here’s what that looks like:
| % of Agents | # of Agents | Trans/Agent | Total Trans | Market Share | |
| 0-15 transactions | 0.0% | 0 | 0.50 | 0 | 0% |
| 15-50 transactions | 6.5% | 130,000 | 15 | 1,950,000 | 16% |
| 50+ transactions | 10.0% | 200,000 | 50 | 10,000,000 | 83% |
| 17% | 11,950,000 |
Yep, we’re looking at an industry with 330K licensees, 200K of whom do 83% of the business.
If you’re a technology vendor, a MLS, a REALTOR Association, or a headcount-based brokerage/franchise… something to chew on.
-rsh
8 thoughts on “Real Estate Agents and Productivity: A Quick Thought Experiment”
ROB,
Thanks for describing and proving what our industry could (and may) look like as it quickly evolves. A “Highest Bar” model would be a great environment to work in. 🙂
Thanks,
Brian
Good stuff. Maybe a helpful thought for your math on transaction count.
Your math leaves out when 2 agents or a Team lead and a buyer agent are involved in a transaction they both get to claim it, as both have their names on it in MLS and both count the sale as their sale!
Excellent point. Perhaps there’s a lot of double-counting going on.
Rob,
Some interesting points, but I think the numbers you use are way off in light of TEAMS. How do these facts from the NAR survey on Teams from 2018 impact your analysis?
1) Twenty-six percent of respondents were members of a real estate team, while 73 percent were not a member of a real estate team.
2) The median number of people on a real estate team was four.
3) In real estate teams, typically all members of the team held a real estate license (80 percent).
My experience suggests that on a team only one member is getting credit on the MLS for all transaction sides for that team. That leaves on average another 3 licensed agents which your numbers will place in the zero-transaction bucket, but who are actually very productive and valuable agents, working full time, getting deals done.
I think it is safe to assume that of the 4% of agents that you state are doing over 50 transactions a year almost all of them are operating a team, and many of them are operating teams much larger than 4 agents. By way of example, I am aware of a former client of mine that operates a 30-person team, all licensed (yes, this is really the size of a brokerage firm). He has all 484 transactions in his own name on the MLS, but obviously has his 30 team members working them diligently. That averages to 16 sides per licensed agent, with none of those transaction sides being credited to any of these licensed 30 agents.
If 26% of agents are working on a team, I think your numbers may need some modification.
Very very good points. Jeff Sibbach pointed it out as well.
Perhaps we need MLSs to put in some common standards on how to account for teams.
I’m not aware of anyone collecting data on unlicensed headcounts?
This compression might not mean much if, say, the number of transaction coordinators and social media marketing specialists and office managers are also skyrocketing? Maybe there are still a million real estate professionals but only a tiny fraction have their license and name on the yard sign?
In other words, NOT armageddon if your median 10/yr transaction agent moves from that to a W2 job as a TC. That might even be a huge upgrade in quality of life for said agent.
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