Realty Reality! 1 out of 75 people in CA is an agent!

Realty Reality: More Real Estate Agents!by Bob Hunt

When we looked at this subject last year, the State of California was turning out newly-licensed real estate agents at the rate of slightly more than 5 per hour. I'm not entirely sure that this counts as an increase in productivity, but the rate has gone up to 6.5 per hour. That's 24 / 7. 155 new agents everyday. 365 days a year.

Last year there was one real estate agent for every 81 Californians. Now the ratio is 1 for every 74. And the population of the state has been growing.

As of May, California has a real estate licensee population of 500,053. If they all lived in the same area -- without even including their families -- that would constitute California's fifth largest city, with a population greater than those of Long Beach, Fresno, or even the state capital, Sacramento.

We've noted before that the phenomenon itself is not new. Every time there is a sustained upswing in the real estate market, the agent population grows. And now, as during other strong markets, the rate of increase in agents soon outpaces the rate of increase in sales. In the past three years California has recorded single-family home sales of more than 600,000. Each of those years has been a record year. Six of the last eight years have been record years. That, of course, is phenomenal.

But, whereas the sales growth has tended to be in the single digits (last year, though a record, was not even a full 1 percent above the year before), the growth in agent numbers has been double-digit, running 12 to 14 percent. What was true last year is, as it were, even more true today: The number of people at the table has increased greatly, but the size of the pie has not grown proportionately.

Moreover, it appears that the pie is shrinking. Statewide, sales were down on a year-to-year basis more than 20 percent in May. Yet there is no sign of a let-up in new license applications. Last year, the number of new sales license exams administered during the January to May period was 69,130. This year the number is 69,017.

California Real Estate Commissioner, Jeff Davi, recently told the directors of the California Association of Realtors® (CAR) that he expected the licensee population to reach 600,000 before it begins to drop back down. Whether or not that is correct, it is a safe bet that it won't be long before the number of licensees is greater than the number of sales.

Imagine a chart with two lines on it. One records the number of real estate sales. It has been slowly growing the past three years, from 601,770 to 624,957. Now it appears to be heading back down to somewhere between the mid to upper-three quarters of 500,000. The other line records the number of licensees. Three years ago it showed 352,143. Today it stands at just over 500,000. It shouldn't be too long until the lines cross.

It is well known -- except, perhaps, to those 55,000+ people each year who are getting a California real estate license -- that it's pretty easy to get into the real estate business, but pretty hard to stay in it. A recent CAR study that tracked 100 new agents over a five-year period found that 57 percent of them had dropped out by the end of five years. And that was during the best real estate market in the history of the state.

So lots of those new licensees have, and will, drop out. CAR's chief economist, Leslie Appleton-Young, has been quoted as saying that new agents all have one or two DNA sales in them. Which is to say: transactions with relatives. But, after that, most of them can't sustain. Of course not.

Look at the math. Even with two "sides" to a sale, when there are more agents than sales, it isn't enough. There may be 500,000 licensees in the state; but there aren't 500,000 people expecting, or trying, to make a living in the real estate business. Still, it's a lot of licenses.

Russ Bergeron, CEO of SOCAL MLS, recently told a group he was addressing that he had been stopped by a policeman on the way to the meeting. The officer asked Russ for his real estate license and his proof of insurance. When Russ said, "Don't you mean my driver's license?" the officer responded, "Sir, not everyone in California has a driver's license."

It's not as bad as Russ' joke makes it out to be; but we all felt the point.

Published: July 5, 2006