Sunday, January 20, 2008

To Be or Not To Be Represented - That Is The Question

Lori and I feel that if we, as REALTORS®, share the kind of Intel we offer below, with the public, they will think twice about giving any logical thought about engaging a real estate agent who is willing to work for less than poverty wages.

From time to time, Lori and I come across buyers and sellers who believe that real estate agents... simply make way too much money for the job that they do. That may be true in some instances. We also know of real estate agents who promise to give a good part of their earnings back to the buyer or seller when a transaction closes. We have heard of practices where real estate agents offer as much as 1/2 of their earnings and as much as 2/3s of the agent's earnings back to the buyer or seller at the close of escrow. Could such an altruistic position be putting the buyer or seller in harms way?

To that end, we thought it appropriate to offer our thoughts on this practice.

Lori & I do not believe that any agent who is giving up 1/2 to 2/3s or more, of his or her income can consistently keep a frame of mind that puts his/her client top of mind and above the real estate agent's need to keep the agent's car payments current, a roof over his/her families head and food on the table.

Keep in mind too, that the real estate markets of 2006, 2007 did not produce an abundance of closed transactions in the entire country, Arizona or the ARMLS (Arizona Regional Multiple Listing Service) region. 2008, 2009 and perhaps as far out as 2011 could ring in similar years of productivity.

FACT:

In August 2008 ARMLS recorded a total of 3930 residential resale and/or new home transaction closed.
In September 2008 ARMLS recorded a total of 3171 residential resale and/or new home transaction closed.
In October 2008 ARMLS recorded a total of 2824 residential resale and/or new home transaction closed.
In November 2008 ARMLS recorded a total of 2629 residential resale and/or new home transaction closed.
In December 2008 ARMLS recorded a total of 2591 residential resale and/or new home transaction closed.

You can review a complete seven year tracking of the real estate market's activity by CLICKING THIS LINK.

In the first 20 days of January 2008, ARMLS recorded 1,201 single family residential listings closed escrow. Now.. Keep in mind that the National Association of REALTORS® study sited that the average real estate agent closes 10 transactions per year (**SOURCE: Realtor.org). If we subscribe to the belief that, as of December 2007, Arizona now hosts over 110,000 licensees and that, perhaps 1/2 of them or more, practice right here in the ARMLS area, how may transactions do you think the average ARMLS real estate agent is closing each month? Contrast the first 20 days of January 2008's figure of 1,201 single family residential listings closing escrow with the first 20 days of January 2007 when 2482 single family residential listings closed escrow. The industry is 100% off target from the preceding 12 months.

However... Do not be disheartened. Even though these numbers look pretty dismal, the number of closed transactions are not too far off from January 2000 when the first 20 days of January 2000 produced 1642 of closed transactions. The two biggest variables are the increase of licensees by nearly 115% since December 2000 and the staggering number of failing mortgages which now helps sponsor nearly 60,000 properties that remain, on the market and UNSOLD!

NOW... DO THE MATH! The average sales price for homes in the valley, priced between $100,000 and $800,000, in 2007 was $286,000. Assume an average commission paid to the buyer or seller agent of 3% or $8,580. Let's also assume that our REALTOR® works for a 100% office, wherein the agent receives 100% of the compensation, less a usual franchise fee payment to his/her broker of 6% of the earned commission. (franchise fees vary but 6% is a good number to use as an average) In our example, the agent will receive a Gross Commission Check of $8,065.20. If our agent gives his/her client 2/3s of his/her commission, he/she earns a total Net Commission, before taxes, of $2,685.71. Now... Let's assume that our agent is in a 30% tax bracket. That means that our agent's take-home pay for this transaction is $1,879.99. Remember, the National Association of REALTORS® sites that the average real estate agent closes 10 transactions per year, from 7.7 in 2000 (**SOURCE: Realtor.org). If our agent is 1/2 again more efficient than the average real estate agent and closes 15 transactions per year, our agent will earn a total, Take-Home income of $28,951.84 which is just $4,800 above the 2007 USA National Poverty level for a family of 5 in 48 states and. **SOURCE: Federal Register, Vol. 72, No. 15, January 24, 2007, pp. 3147–3148

Now... What if our real estate agent worked for a traditional real estate company where the agent's commission is shared with his/her brokerage on a SPLIT. The majority of the REALTOR® population work for traditional real estate firms and even the most senior agents capture only 80% to 90% of the commission dollars, after their traditional franchise fee SPLIT.
Let

s move our benevolent agent into a traditional real estate firm, such as ERA, Century 21, Coldwell Banker, Better Homes and Gardens or any number of other companies that host traditional real estate commission SPLITS. Let's assume that he/she has achieved an 80% SPLIT agreement with his/her company, less his/her 6% franchise fee. That means that the 80% SPLIT is really 74%.

Now... Let's assume the same transaction with a total earned commission of $8,580. The agent's total Gross Commission, at a 74% SPLIT (after the 6% franchise fee) is $6,349. Now let's assume that our altruistic agent gives his/her buyer or seller 2/3s of his/her income netting our agent a grand total, before taxes, of $2,147.52. Remember, our agent is also in a 30% tax bracket, which in realty nets our agent a grand Take-Home income of $1,503. If our agent performs better than the NARs average REALTOR® and closes 15 transactions in one year, he/she will earn a grand total of $22,545 or $1,550 below the National Poverty level for a family of 5 in 48 states, Hawaii and Alaska's poverty level have a bit higher income ceiling. **SOURCE: Federal Register, Vol. 72, No. 15, January 24, 2007, pp. 3147–3148.

Lori and I believe that human nature will prevail and the client, on some unfortunate day... may pay a very heavy price because the real estate agent may not be able to conduct too many transactions with the altruistic contributions described in our scenarios. It is simple economics and human nature. This does not make REALTORS® bad people, it makes them human and as humans, we believe that REALTORS® should earn a fare price for performing their duties to protect the public. Remember, as Arizona licensees that is our charter, as defined by the ARS Title 33, to protect the public's interests.

How in the world can a real estate agent hope to assist a buyer or seller if the real estate agent is going to put himself or herself in financial harms way. Lori and I feel that if we, as REALTORS®, share this kind of Intel with the public, the public will think twice about giving any logical thought to engaging a real estate agent who is willing to work for less than poverty wages. Would you be willing to work for less than Poverty Wages? Do you believe that you would be able to put your client's needs ahead of the needs of you or your family if you were working for Poverty Wages or less?

It simply makes no sense to us... How about you? Think about it.

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1 Comments:

At 10:39 PM, Blogger sellmyhouseinaz said...

It is really nice information. I get a lot of ideas between real estate agents and brokers. Thanks for helping us to know more about this information.

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