New report calls out ‘marginal’ agents. Is it fair?
The Consumer Federation of America suggests that new and less committed agents are bad for the industry and "deprive" their full-time peers of commissions.
Key points:
- Competition is fierce among real estate agents in a market with limited inventory and near-record numbers of licensed agents.
- The Consumer Federation of America says that in this environment, “marginal” agents are negatively impacting professional agents and consumers.
- However, everyone has to start somewhere, a NAR economist told Real Estate News.
The story sounds familiar, because it is: A hot housing market leads to a huge uptick in new real estate agents who hope to cash in on the buying frenzy. It was certainly the case in the years leading up to the 2008 housing crash and more recently, during the pandemic.
But with inventory levels as tight as they are right now, competition among agents for new listings and buyer clients is fierce. For much of 2021 and 2022, there were more licensed agents than listings, and there's evidence the trend has continued through 2023. As the market started to cool in the latter half of 2022, some agents began leaving the industry, but their numbers are still well above pre-pandemic levels.
A lack of inventory combined with a glut of relatively inexperienced agents is creating a problem for the industry and for consumers. At least that's what the Consumer Federation of America is alleging in a new report on the current market conditions where more than 1.5 million NAR member agents are competing over roughly 4.3 million annual home sales.
The challenge presented by 'marginal' agents
In the report, the CFA suggested that so-called "marginal" agents — those with five or fewer sides in the last year — are taking deals and commissions that would otherwise go to full-time agents in a more balanced or more regulated market. In the markets analyzed, agents who closed five or fewer deals captured 25-30% of commissions.
"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," the report reads.
The CFA argues that consumers also suffer when represented by "incompetent or uncommitted agents" who are less capable than their more experienced peers, and there could be reputational costs to the industry where both insiders and outsiders may view the career field as one that does not require a high level of professionalism.
It takes time for new agents to build their business
Despite the challenges to veteran, full-time agents by inexperienced or part-time ones, everyone has to start somewhere — and newbies will eventually grow and improve — Jessica Lautz, NAR deputy chief economist and VP of research, said to Real Estate News.
"As someone builds out their niche, their expertise is going to change and evolve as anyone's profession would," she said, adding that consumers ultimately get to choose who to work with.
And while competition for listings and buyers among agents is tough at the moment, it's just one of the realities of getting into real estate, an entrepreneurial and competitive industry, Lautz added.
"It's the nature of any business out there, whether it's a hair salon or a restaurant. A Realtor is going to compete with friends for business," she said.