This is why I think this housing market will leave you out to dry if you venture in it at the wrong time.
Pardon the puns, but earlier on, I had written this post about the End Of The California Housing Bubble and mentioned that one of the signs of the market peaking is how everyone you know has decided to become some kind of professional in the real estate business. Well after cleaning my desk, I unearthed something that I had received not too long ago: what else was it but a letter from my esteemed mobile dry cleaning service guy, announcing his new business venture.
Believe you me, I was struck by how this fellow was being shrewd by applying some of Robert Kiyosaki’s suggestions for following the footsteps of his legendary Rich Dad, who was, after all, a real estate entrepreneur. As it is, Robert Kiyosaki champions the idea that to be rich, you should own businesses and real estate and not get stuck in the daily grind of a regular job. Plus, knowing what this dry cleaning guy can do with my laundry, I can indeed vouch for the superiority of the services he affords his clientele so I have no doubt he’d do really great as a realtor. The only problem he may be facing here is sheer timing. Here is his note:
Dear Client Currently Known as the Silicon Valley Blogger,
I am happy to announce that I have joined forces with Coldwell Banker — one of the most widely respected and trusted real estate names in the nation.
Together, we are poised to deliver the highest degree of service through our unmatched global network, nationally acclaimed marketing resources and expertise of the local San Francisco Bay Area market.
Should you require my services in the future, rest assured I will put the collective expertise and resources of the nation’s largest real estate brokerage to work for you — while delivering the professionalism, knowledge and service you expect.
This is not a departure from the 1-866-DryClean business that we serve you with, but merely an addition to what help and expertise I can bring to you and your family or friends. The 1-866-DryClean business continues to grow and expand through marketing and the kind referrals that you have offered us.
I hope you are as excited by this news as I am that I am able to provide to you the same level of professional and trust you have learned to expect from me in the past.
If you have any questions or are interested in buying or selling your home, please call me today. I look forward to talking to you.
Sincerely,
The Agent Formerly Known As Only Your Dry Cleaning Guy
So are we in a real estate “agent bubble”?
What else can this be but the sign of an “agent bubble”, which is defined as the glut of real estate representatives that have arrived from previous lives ranging from white collar professionals to those from the business sector or the working class; folks from all walks of life eager to stake a claim upon the enticing riches of the seemingly never ending property boom.
This all just brings to my mind an article I read in our local newspaper which expounded on how this “agent bubble” has now popped, stating these signs that point to this situation:
- The California Association of Realtors is predicting only 74% of membership renewals from its current members next year.
- One of the State’s largest mortgage lenders has closed several loan fulfillment centers around the nation, cutting offices and jobs this year.
- There has been a noticeable decline in the mortgage business employment numbers in the state of California for the same time period.
- Interest and enrollments in real estate courses required for getting a license have dropped — between 20% – 25% decrease has been reported.
- The number of people taking the real estate salesperson licensing exams has dropped by 7%.
To put things in perspective, consider that in Silicon Valley, approximately 22,000 resale properties sold for the first 9 months of 2005, whereas a little over 16,000 did so during the same time period in 2006. With a reported 26,000 licensed real estate brokers in the county, with say half of them assumed to be actively in business, then that would suggest that an estimated one sale per broker was generated for the first 9 months of the year. With an average of $700,000 per property and a 3% commission, we’re talking about each agent grossing $21,000, but with their employing brokerages taking half as commission, particularly for newer agents, then the gross would only amount to a paltry $10,500 for 9 months work.
Beyond this, agents are also required to pay a myriad of fees that total several thousands of dollars in the first quarter of each year, so in the coming months, more pain for them is on the way — including membership payments for the local Realtors board, MLS listings services and brokerages they work for. Hence it is assumed that many agents will probably “retire” from their efforts and opt to avoid paying fees rather than face another year of uncertainty and potential famine.
Perhaps given such harsh realities, it could be the case that many so-called real estate professionals are merely working part-time while depending on other income streams for support, though I expect that the more experienced folks — especially those who joined in the investing bandwagon in the earlier years — probably have quite a bit saved up to ride out this market cycle.
Now as a market spectator I can only hope my dry cleaning service man does well in his new venture, but even if he doesn’t, he’ll be fine by falling back on his booming laundry business. Now I’m not too sure about the daycare provider next door who wrapped up her day care business in favor of mortgage lending. I’ll have to ask her about things next time she invites me to one of her New Mexico investing seminars…
I knew that there were still reasons to love your day job no matter what!
Thanks to the San Jose Mercury News and Dataquest for the facts and figures on which this story is based, and to splendiddrycleaners.com for lending their logo (no, they are not affiliated with anyone I have mentioned on this post).
Copyright © 2006 The Digerati Life. All Rights Reserved.
{ 29 comments… read them below or add one }
FYI – You might want to consider this critical review of Kiyosaki before quoting him again.
http://johntreed.com/Kiyosaki.html
I’m aware of Kiyosaki’s controversial reputation and many times I try to be tongue-in-cheek ;).
Interesting post, the San Diego real estate markets decline may actually cause an induced real estate recession not only in San Diego but in other hot markets of the recent past.
i hear ya. I am happily renting and still holding out on the seattle market. my real estate agent just send me a bunch of pics from home I passed on 3 years ago (when I was in the market for a home)….they are going for almost 70% more than what I offered!
Absolutely insane.
This is a good article. I was in the securities business from 1989-1994 before I started in the mortgage biz. The old joke about the market was: The market is undervalued when a stockbroker is avoided at a cocktail party, fairly valued when everyone talks to him, and over valued when people start telling HIM what stocks to buy.
Brian, good one! 😀
The current over population of real estate agents and mortgage brokers will get thinned out. The strong shall survive. It’s unfortunate that some will have their dreams busted, but it is also sad that consumers have to deal with the lack of experience that comes from ‘professionals’ who also have to keep a ‘day job’ to survive.
I noticed that tongue planted firmly in cheek.
kk
Great, well-written article. Actually, even when the market has been hot I have heard a “back-of-the-envelope” statistic thrown around that the top 20% of real estate agents are making 80% of the money! I could only imagine how this changes in a cool market like the current one.
Nice post. I don’t like to think too much about the real estate agent bubble. 🙂
Hey fantastic article and totally agree – the number of agents is certainly not sustainable. One thing may be off with your math though – the number of agents involved in a transaction is usually two (one representing the buyer and one representing the seller). So that may increase the gross figure.
But your assumption of 1 in 2 active maybe generous.
If you’re interested in more stats, we did an analysis of Hawaii a little while ago and found that 1 in 6 were actively representing a seller in the Month of September.
Either way, if you are interested here is the post: http://blog.homethinking.com/2006/11/28/real-estate-agent-bubble/
Keep up the good work.
Hi Niki,
Great point on the figures! I actually got the numbers/data from DataQuest and the local paper which published the assumptions. There could very well be variances in the numbers a bit, which I find fascinating nonetheless! Will check out your post.
I’ve been working here at Coldwell Banker for some 15 years now, I hope I can make this a permanant career one day! My biggest frustration is our dry cleaner who comes sometimes on Tuesdays and sometimes on Fridays. Be careful of long weekends and holidays. Please pass along my need of stable dry cleaning services to your guy, maybe he’s actually in my office. That would be nice.
Wow! If I knew what I know today I wouldn’t have gone into real estate. Yes, your article is right on as I am inactive real estate agent in Hawaii because the fees were too high and yes I had two jobs on top of real estate. I had to work 7 days a week!
I don’t quite agree with you. First of all, real estate is local, not all markets are crashing at this moment, for example, real estate in some part of TX is just picking up. And second, there are many ways to invest in real estate, with some education, you can make profits even in a bubble market.
Hey fantastic article and totally agree – the number of agents is certainly not sustainable. One thing may be off with your math though – the number of agents involved in a transaction is usually two (one representing the buyer and one representing the seller). So that may increase the gross figure.
We are seeing the fall off of agents increase, as well as the closing of offices. Pru Cal in So Cal has closed at least 6 offices in 6 months.
very nice 😀
Are real estate agents still getting 6% commission (total) on multi-million dollar silicon valley properties? I’d heard that it was very negotiable once you get past a $1m purchase price.
It always been negotiable, with only a few that get 6% because they know how to close the seller.
The cleaning out of the real estate agents is probably a good thing for the consumer as the more knowledgeable and skilled will survive. Notice that I did not say experienced – you don’t know what experience they have had.
In the Naples Florida area about one-third of the local real estate board has vanished since last year.
I’ve noticed that realtors are struggling in Colorado as well. It’s not just the downturn in the market, although that’s probably the biggest factor. It’s also that the business is changing. How consumers shop for homes is changing. So much more is being done online.
If a realtor is a “good ol’ boy” who thinks he doesn’t have to adapt, he’s going to get burned sooner or later because of competition like Help-U-Sell, etc.
This cycle has weeded out a lot of part time and get rich quick agents. There are still people buying and selling homes, just not in the numbers that they were. Things are starting to pick up in certain parts of the country, just slowly.
“The market is undervalued when a stockbroker is avoided at a cocktail party, fairly valued when everyone talks to him, and over valued when people start telling HIM what stocks to buy.”
I like that! I think it’s obvious we are in a slump, but if your smart and put your money in the right places you should come out ok!
I think the non-renewal rate of ~25% is pretty accurate of what I’ve seen. The Austin market is actually fairing pretty well, but it’s not the easy money that a lot of newbies are used to.
Interesting article and information. I know that in San Diego condominiums have really been hit hard. The best thing about condos coming down in price is that it is allowing a lot of 1st time home buyers to get into the market when they weren’t able to do so a couple years ago.
There is always more to America than California,Las Vegas,and Miami. We however have to take the medicine for the downturn of those markets. I wish your leaders and lenders would have done a better job in looking out for the people. Just my take.
It’s tough right now for all realtors!
A good realtor will help you understand the entire home buying process, which can be confusing at times. A few things that you should expect from a San Diego realtor is:
• Knowledge of the housing market and the mortgage industry
• Ability to guide you to lenders that can pre-approve you for a mortgage and help you purchase within those guidelines
• Help you find neighborhoods and homes that fit your needs and schedule viewings according to your availability
• Provide utility and other local information and what potential the home has for resale at a later date.
• Have gainful knowledge of disclosure procedures and address any issues with the property in question
• Review all closing procedures, escrow and other accounting methods used in the process
• Prepare a negotiation statement that is based on area home prices, allowing you to make the best deal on your home
• With your consent, negotiate the best deal on the home and establish any additional details such as furnishings and amenities that are to remain with the home
• Determine any contingencies, financing options and date that you can take possession of the home
• Monitor any home inspections or repairs that are necessary and ensure buyer that they have been completed.
• Prepare walk through prior to signing final paper work so that there are no hidden surprises
• Ensure that buyer understands all aspects of paper work they are signing
• Give buyer the keys to their new home.
Once you’ve been pre-approved and know what price range you plan to stay within, I can help you determine which properties fit your needs and wants, using the MLS system.
Start your search now – and view current listings!
It continues to be a difficult time for many agents. However the good news for the consumer is that because much of the herd has been thinned, many of the agents left are the better ones anyway.