The New York Times
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September 7, 2007
As Housing Market Cools, Far Fewer Become Agents
By KATIE HAFNER
Even when Leon Maldonado was getting his real estate license three years ago, he saw that the red-hot housing market in San Diego was beginning to cool. But he decided to forge ahead.
For a while, optimism kept him going, but after few sales and fewer prospects, Mr. Maldonado finally gave up this year.
“When I tell people I got out, everyone understands,” said Mr. Maldonado, 24, who now collects a steady paycheck, from a health care staffing company. “It’s the best decision I ever made.”
Many people rushed into residential real estate sales when the booming housing market made a license to sell homes seem like the closest thing to a sure bet at the casino. But now, as the housing market slows to a crawl, those new agents and a good number of more established ones are looking for other employment.
The number of people taking the real estate sales exam in California soared from a little more than 2,000 a month in the late 1990s to a peak of nearly 20,000 in April 2005, according to the California Department of Real Estate. But by July 2007, the number had dropped to 8,000. Similar patterns are seen in other states.
“It’s a perfect storm for real estate agents,” said Glenn Kelman, chief executive of Redfin, an online brokerage in Seattle. “Not only have unprecedented numbers flocked to the profession, but at the same time you have the mortgage meltdown, the housing bubble bursting, and online competitors attacking the commission structure.”
Traditional real estate agents, who depend entirely on commissions, “are beset on all sides,” Mr. Kelman said.
Indeed, membership in the National Association of Realtors, the national trade group and lobbying organization for the sales side of the housing industry, increased by 163,000 in 2005, to almost 1.3 million members, but grew by only 6,000 in the first six months of this year.
When an entry-level middle-class home in major markets on either coast lists at $500,000 and pays out a 6 percent sales commission, it is easy to see how an agent could get excited. In reality, the agent’s commission, after splits with other agents and the brokerage company, is closer to about 1.5 percent. Even so, sell 10 homes a year, and you are making a fine living.
The problem is that when everyone else jumps into the field, few new agents can hope to sell more than one or two homes a year. According to the National Association of Realtors, agents earn an average of $49,000 a year.
That is an income Randy Haddadin would have welcomed. Mr. Haddadin, 38, moved to Miami Beach in December 2003 from Washington, after leaving a job in information technology. He promptly got his real estate license.
Mr. Haddadin had a few disadvantages. He was new to the business and new to Miami Beach. And newcomers have an especially difficult time in a business that requires constant networking, most crucially during slowdowns.
“I didn’t really go out and network like I should have,” Mr. Haddadin said, with a tinge of self-recrimination. Even if he had distributed bushels of business cards, he said, there was nothing he could have done about the bad timing. “It wasn’t a time for someone not from this area to start,” he said.
Mr. Haddadin is now weighing his options. He might seek a job in information technology again, or perhaps help a friend open an Italian restaurant in Miami Beach, while selling real estate on the side.
Chang-Tai Hsieh, a professor of economics at the University of California, Berkeley, who has studied the economics of real estate, said he was not surprised to see that agents in South Florida were getting out. “When the price of housing goes up, you have people jump in, and when the price of housing falls, people jump out,” he said.
Professor Hsieh said this was generally true across the nation. In areas where housing prices have fallen significantly, such as Miami, the number of agents falls commensurately. If a market remains relatively steady, he said, so does the number of agents.
And for those who stay in the business, the 80-20 rule applies. “Eighty percent of the business is done by 20 percent of the people,” said Jay Costello, president of Hill & Company, a brokerage in San Francisco. And those, he added, tend to be well-established, well-connected agents.
Some who want to stay in the business are taking a second look at working for commissions. “People who used to turn up their nose at working for us are now drilling holes to get into the building,” said Mr. Kelman of Redfin, which pays a salary and a bonus based on customer satisfaction.
He said that during the first six months of 2007, Redfin received 2,000 résumés and hired 34 agents, bringing the total at Redfin to 40. Mr. Kelman says he expects to hire 35 to 50 more agents in the next year.
Even some people who were making a good living as real estate agents are adjusting their careers. Edie Narrido got her license in 2002 in San Francisco, and after two unsteady years, she started to do well. “I was peaking,” she said, “but I noticed the market was slipping.”
In 2005, in search of more stable work, Ms. Narrido went to work for a sales and marketing company that helps developers sell newly built residential units. She still works for a commission, but the income is much steadier. And as she watches the San Francisco market slow down, she said, she has no regrets.
“In the resale industry, you have no idea where your next sale is going to be,” said Ms. Narrido. “It’s like trying to look into a crystal ball.”
It was intuition that prompted Sonia Montana, 48, to abandon real estate three years ago and take a job selling life insurance in South Florida. For some reason she cannot pinpoint, she said, she decided it was a good time to get out.
“When I moved to insurance, everyone said: ‘Are you crazy? You’re doing so well,’ ” recalled Ms. Montana, who works for New York Life in Weston, Fla., 20 miles west of Fort Lauderdale. Now those people, many of them former colleagues, are looking for ways to get out.
“I’m amazed that I was right,” she said.
In areas still bracing for a more significant downturn, an exodus is anticipated.
“I think we’re going to see a lot of that in the upcoming year,” said Kathleen McDonough, who has been an agent for nearly 14 years in Montclair, N.J., one of the last areas in that state to be affected by the real estate slowdown. “But I can see there’s trouble ahead,” she said. “I think among the less experienced agents, or agents who might consider retirement, I can see a lot of attrition.”
The thinning of the ranks is welcomed by those who plan to stick it out.
“It’s great for people like me,” said Tamara Krause, an agent in Boston who said she has no intention of giving up. “Because a lot of those people who just got in are now getting out.”
Copyright 2007 The New York Times Company
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