There were 98,800 active real estate brokers in California during November 2016. This number has yet to find a bottom since declining from its January 2010 peak of 109,500 active brokers. Conversely, the number of active agents continued to increase from the 2014 trough of 171,100 active agents. There are now 192,700 active agents in California.
Historically, approximately 1.5 agents actively practice per active broker. This ratio grew during the greatly inflated agent population of the 2000s to as high as 2.7 agents per broker. This ratio fell in the aftermath of the Millennium Boom but reversed direction beginning in 2014, currently at 2.0 active agents per active broker.
As home prices falter in 2017, expect discouraged agents to slowly drop out of the active population in 2017 for about one year before rising again. The number of brokers will begin to stabilize going into 2017, to slowly ascend back toward peak numbers experienced in 2009. Expect the next big wave of new licensees to arrive around 2018, as public confidence returns through added jobs and increased home sales volume.
Updated December 21, 2016. Original copy posted March 2010.
||Oct 2016||Nov 2015|
The above chart tracks the number of active real estate brokers and agents licensed in California, based on data released monthly by the California’s Bureau of Real Estate (CalBRE). These numbers exclude licensed brokers who do not use their licenses, and licensed agents who are not employed by a broker.
Do you plan to renew your real estate salesperson or broker license again?
- Yes. (90%, 459 Votes)
- No. (10%, 51 Votes)
Total Voters: 510
first tuesday analysis
In a stable market, a natural equilibrium develops between active real estate agents and brokers. This ratio has historically found balance at the level seen in 2002; approximately 1.5 active agents for every active broker.
As real estate entered its boom phase of the market cycle in the mid-2000s, new agents arrived en masse with the optimistic belief that extra money was to be had working real estate. In 2006, following the peak of the boom, there were a total of 2.7 active agents for every active broker. The high number of agents accompanied an inflated market, with unsustainable prices and little sense fundamentally.
After hitting the 2006 high, the ratio of active agents per broker began its downward trajectory towards historic norms bottoming at 1.6 in mid-2014. However, due to rising home prices, the ratio began to increase again, currently at an average of 2.0 active agents for every active broker thus far in 2016.
Keep in mind that the active licensee totals above understate the real depth of the problem, as many licensees remain technically “inactive.” They presented themselves as licensees to speculate in property as principals or negotiate purchases for family members, all without being employed by a broker.
Agents speculate on the market
In October 2006, for instance, there were 261,700 active agents, but 376,600 Californians held agent licenses. Compare this to the more stable period of January 2000, when there were 122,300 active agents and 196,500 total agent licensees. Rather than just providing brokerage services to other individuals, the superfluous agents — active and inactive — bought and flipped properties. They speculated in the market while operating as insiders pulling (or saving) a fee when they, their family members and their friends decided to buy the property they located.
Even now, as we anticipate a return to core economic principles (supply for sale vs. demand by actual user-occupants rather than speculators) and real estate fundamentals (price-to-rent and mortgage-to-income ratios) in the residential and commercial markets, the chart above shows the licensee population is above the standard 1.5:1 agent-to-broker ratio. Expect the current ratio to drop slightly until licensee numbers rise again, expected in 2018.
Licensing in the economic recovery
Will this ratio last after the trough in licensee population?
Not likely. The boost in home prices experienced in the end of 2012 through 2014 caused increased optimism among the agent population. The perception of a healthy real estate market due to price increases has lured more individuals seeking career opportunities to become real estate agents. New sales agent and broker licensing jumped in 2013 and remained at their highest levels since the housing crisis fallout in 2008.
Insufficient lender regulation to protect public institutions and society from harm creates a mentality that will eventually lead to another destructive real estate boom. When this happens, possibly around 2019-2021, agents will begin to rapidly multiply once again, and standards will diminish.
It will be up to CalBRE to protect society from adverse licensee conduct. To do so, they will need to tighten up the agent licensing exam to control a too-permissive passing rate. This move will limit new agents to the most qualified, dedicated and committed.
Whether the CalBRE will be politically able to do this in the face of opposition from big brokerage offices is doubtful. Large brokerage operations require a constant high number of agents-for-hire to blanket the market when momentum takes hold.
California demographics, and the extremely low present demand by occupying homebuyers, point to this return of “excitement” in the field of real estate around the time period of 2019-2021. Even then, the rate of buyer-occupant homeownership which has dropped from 61% in 2006 to 53% in 2016, will continue to suffer. Thus, fewer brokers and agents will be needed to service the purchase and sale of homes.
As mortgage rates begin their steady long-term rise, downward pressure will be put on home prices. This will work well for brokers and agents representing investors interested in acquiring income property.
Agent and broker population, past and future
In early 2008, 7% (1 in 14) of all single family residences (SFRs) in California stood vacant, owned by:
- buyers of second homes (which were acquired in large part due to speculative fervor); or
- lenders (in the case of real estate owned property (REOs)).
In 2013, home sales volume essentially matched the years 2009 through 2012. 2014 experienced home sales volume roughly 7% below 2013. However, home sales volume picked up in 2015 and ended the year level with 2013. For brokers and agents looking forward, sales volume in 2016 is forecast to remain about the same with 2015 due to prices remaining too high for buyer incomes. Expect sales volume to fall in late 2017 in reaction to rising mortgage rates.
With the current batch of licensee entrants embracing more sustainable, long-term real estate strategies, the “quick-buck” real estate agents are more reluctant to enter the profession than in earlier years.
No longer do we see the sort of high competition between agents that helped push up prices from 2003-2005. The return of lending fundamentals, pushing higher down payments will set a slower pace in the real estate market than has been experienced at any time during the last decade. If it weren’t for the cash-heavy speculator interference experienced in 2013, California property prices would have remained at their 2012 levels without the bounce.
Purchasing trends in 2014 reflected the intermittent influxes of excited purchasers who are experienced neither as investors nor homebuyers. These buyers who are speculators are most frequently nothing more than gamblers placing bets on houses without the patience or intent to do anything but wait for the market to increase the price so they can cash out on their “investment.”
Large single family residential (SFR) brokerage operations with branch offices have always depended on a constant flood of newly-licensed agents to fill their cubicles. This practice was enabled in the past by a high agent turnover rate, as freshly-minted agents burned through their family members and social contacts without developing a viable client base.
Brokers and office managers were able to mitigate the eventual loss of sales production from client-exhausted agents by aggressively soliciting new licensees to bring in as replacements.
These “list-and-run” type agents have disappeared from the ranks of new agents, as the total number of new agents has dropped dramatically. During the peak years of 2004-2007, 5,000 new agents were licensed monthly. Since October 2007, the number of new sales agents has remained steady with a slight general decline, from 1,100 monthly at that time to about 1,000 monthly through 2012. Then, licensing spiked in the first half of 2013 (due primarily to excitement caused by the price movement resulting from the speculator frenzy).
first tuesday predicts sales agent licensing will remain around the current level of 4,500-5,000 each quarter until 2018, when home sales volume is likely to reach a sustainable recovery.
When viewed in the context of disappearing short-term agents, rather than vanishing homebuyers (the rate of homeownership statewide is stuck at a low 53% in late-2016), it appears that economic reality is forcing employing brokers to:
- shutter their least productive branch offices;
- release the weakest office managers and under-performing agents;
- attempt to locate agents who generate business;
- upgrade office locations and cut rent expense by taking advantage of office vacancies and ever lower rent;
- develop new profit centers with office divisions for escrow, finance, homeowner/tenant insurance, property management, syndication and other brokerage services; and
- require agents to “get back on the street” and gather property information and smoke out the deals to generate leads and sales.
Even more troubling for large brokerage operations is the bickering arising over brokers’ fee-splitting arrangements with their agents.
In the meantime, employing brokers take in fewer dollars and shoulder the costs of overhead, promotion, often servicing unmarketable listings at great cost. Gradually, the younger and more aggressive agents employed by large brokerage offices will look to become brokers or team up with brokers and other agents relocating into smaller operations. Others with a long-term client base will join “rent-a-desk” operations in order to reduce the fee percentage taken by the broker.
Survival and success
Agents jumping out on their own too often do not have the business acumen to set up and operate a broker office, even if it is their own one-man operation. They attempt to do so under the belief, right or wrong, that their current broker is getting too large a share of the fees.
Sellers who continue to demand unreasonable prices (the sticky price phenomenon), or who involve themselves in other conduct which keeps the property from selling within a 30- to 60-day marketing period, need to have their listings cancelled and returned. All this conduct suggests that fewer agents are needed by brokerage offices to effectively service the needs of the public.
Blasphemous talk? Not at all if an efficient brokerage operation is what it takes to get into the full recovery stage without going broke.
Brokers who advertise property that looks good from the curb, and who set listing prices appropriate to the property (prices which are likely to quickly generate offers at near the listed price) will get an offer within 30 days. Such conduct will provide for the survival and success of the rational seller, the broker and his agents. At times of speculative fervor, which are always short in duration, discussion of a stable office environment might seem like nonsense to those with a short-term outlook.
In a recovering market, time lost hurts everyone, a lesson inept policy makers – both state and federal – are beginning to learn from the totally ineffective and ongoing “extend-and-pretend” loan modification fiascos and 2009-2010 federal and state homebuyer subsidies.
Brokers who learn to cut overhead and eliminate operating inefficiencies while beefing up their staff of performing licensees in 2017 will be in the best position for the up-tick in the annual sales volume likely to begin by 2018. Employing brokers operating successfully in 2016 will be defined by their ability to plan ahead. They will have to be visionaries if they are to get in on the action when the federal government and Wall Street return to easy lending standards in a time of newly lucrative home sales.
Looking ahead for smaller brokerages and others affected
In the near future, small brokerage offices with fewer than 16 agents will probably continue to recruit agents as they always have. Large brokerages typically use mail-blitzing campaigns and seminars to entice both seasoned MLS agents and newly licensed agents into their offices.
Conversely, smaller offices traditionally recruit from local word-of-mouth contacts. Brokers maintaining a single office with a staff of agents tend to have several different types of business clientele and need to focus on more than scope in the numbers game to drive the listing and marketing of SFR properties.
These smaller brokerage offices may well attract the more thoughtful entrants into real estate looking for the long-term advantages of being around others who work income property, land, and property management.
The boom during the mid-2000s saw five times as many individuals enrolled in licensing courses as compared to the late ‘90s. That licensing education revenue is all but gone for the schools, reduced to 15-20% of its peak 2007 four-year run.
If that is not bad enough for real estate educators, the license renewal rates among brokers and sales agents (especially those hit-and-run agents who arrived during the past six years) dropped to unprecedented levels by 2011. While renewal percentage rates jumped significantly going into 2013 on pricing bubble enthusiasm (despite the slipping sales volume), renewal percentages will not begin a sustainable rise until 2017.
The average rate of sales agent license renewals in 2015 was roughly 80%, up 7 percentage points above 2014. Renewal rates will likely remain about the same level through the end of 2016 as reports of lower price levels finally make their way into the media. Brokers are hovering near an 90% renewal level.
Many let their licenses expire, then wait to see if the real estate market picks up during their two-year grace period for late renewal. Some of them cite price movement reports in 2013 as a reason to renew when they otherwise would not have done so. Most will be disappointed as the volume of sale has remained defiantly flat in spite of very volatile price movements. Several years remain before the next boom arrives – around 2019-2021.
The broker takes charge
To operate a successful brokerage office, the broker needs to employ viable agents.
It is the quantity and quality of agents that produce the end result sought by brokers to be successful, i.e., broker fees. As in all service businesses, the linchpin for achieving success is the ability of management to orchestrate the efforts of qualified agents.
However, most brokers employing agents tend not to dedicate sufficient energy to the supervision of their agents. A level of seemingly deliberate neglect prevails in most single family residential brokerage offices, consistent with the proverbial “dumb agent rule.”
Thus, agents are left to learn the trade by observation or some third-party training, and to hone their skills by trial and error. This is an empirical result based more on the agents’ good instincts than on training, procedural policy and constant supervision by the broker — all required by law.
Brokers need to be more than distant observers limited to providing remote oversight for the agents. They or their administrative assistants and managers need to learn to supervise and police the business-related conduct of their agents.
Policing of business-related conduct
Supervisory conduct by brokers and managers includes:
- setting the production goals to be attained (listings and sales);
- an analysis of the agent’s income and expenses;
- the setting of fees needed for the agent to become financially viable as a real estate agent;
- establishing the personal routines and activities which will likely make the agent productive, i.e., overseeing the agent’s management of time spent working for the broker; and
- the insistence that compliance reports be prepared and delivered periodically to management. [See RPI Form 520 – 523-1]
Further, the broker needs to be actively involved in the agent’s fulfillment of the duties the broker owes to clients with whom the agent has contact.
Thus, the agent knows from the beginning just what level of production is expected by the broker as a requirement for remaining with the office. Also, the broker will be demonstrating their expectation that the sales agent is to maintain a competitive attitude about producing listings and buyers that do deals. Further, an environment will have been created with a greater probability of producing purchase agreements and closings, which spells success for all involved.
See “Human resources: (be)low-level management by brokers,” Chapter 2 of first tuesday Realtipedia Volume 7: Real Estate Matters. Current first tuesday students may access Realtipedia from their Student Homepage.