In December 2011, 924 new real estate agents and 530 brokers received licenses from the California Department of Real Estate (DRE). As of December, a total of 143,856 brokers and 287,672 agents held licenses issued by the California DRE.
The DRE issuance of original sales agent licenses in the fourth quarter of 2011 was at the lowest level since early 2009. Original broker licensing reached a low last seen in 2003.
first tuesday predicts that the trend in unrenewed license expirations will continue into 2016, until the decline in total licensees ends and new licensees begin to arrive in greater numbers.
Not all of these licensees actively use their licenses in real estate transactions. At the time of this writing, there are 106,874 active brokers and 186,859 active agents. This is the lowest number of active brokers present in the market since early 2008 and the lowest number of active agents since 2004.
Roughly 65% of DRE-licensed agents are employed by a broker. Inactive agents, the remaining 35%, are not able to represent others in real estate transactions, although inactive brokers may. [For the current and forecasted total active brokers and agents in California, see the first tuesday Market Chart, The rise and fall of real estate brokers and agents.]
The declining number of active licensees indicates several years remain until the occupation is once again seen by the public as a prudent career choice. [For historic data on the number of licenses issued quarterly, see the first tuesday Market Chart, Newly licensed sales and broker population.]
In December 2011, 73% of brokers elected to renew their licenses, in keeping with renewal rates since 2007. 65% of agents renewed their licenses, slightly more than the agent renewal rates in the past three years, which have generally remained steady at around 60%. The remainder chose not to take the mandatory education and pay the required fees to keep their licenses valid.
first tuesday take: Based on historic home sales patterns and current employment levels, first tuesday predicts the current average rate of approximately 900-1,100 newly licensed agents each month will remain appropriate for the real estate market until this Lesser Depression ends and a full economic recovery takes hold — probably in 2017 for the real estate industry.
This rate of newly minted agents is far more restrained than was seen during the boom years, when approximately 5,000 new agents arrived on the scene each month over a three-year period ending in September 2007.
The drop in new agent licensing numbers is caused by two factors that have led to an overall drop in the licensee population, from 265,201 active real estate agents in 2007 to 186,859 in late 2011:
- the housing market is simply not dynamic enough at present to support the former high numbers of active real estate sales agent licensees, if it ever was; and
- DRE-mandated education (three courses to become a sales agent) discouraged potential licensees and decimated the ranks of prospective agents.
Indeed, to maintain the current level of newly-licensed real estate agents, the agent licensing exam passage rate has risen dramatically. In December, 1,269 people took the salesperson licensing exam to become real estate agents, and 62% passed that test. In contrast, the passage rate from 2004-2007 varied from 45-50%. In those days, unprepared and less dedicated applicants took the test hoping to pass, get licensed and make quick money in an exploding market, a product of the Millennium Boom’s hit-and-run mentality.
As the real estate recovery progresses going into 2017, the DRE (or its successor agency) needs to consider increasing the difficulty of the licensing exam to reduce the exam’s passage rate (or implement additional educational prerequisites) to weed out potential licensees and prevent an oversupply of agents. Had such measures been taken in the years from 2004-2006, the distortions caused by the extravagant number of new ill-prepared entrants and the resulting current high rate of attrition among licensees would have been averted. Instead, a human resources disaster was allowed to take place. [For more on the future role of the DRE in California, see the January 2012 first tuesday article, Rumors of DRE enlightenment by consolidation.]
Of course, this would have displeased the large multiple listing service (MLS) brokers, who flooded the streets with easily replaceable agents, but it would have fulfilled the DRE’s mandate to protect the homebuying public from incompetence and the resulting distortional activity in the real estate market. [For the number of agents employed at California’s top brokers, see the first tuesday Market Chart, The 29 top brokers in CA by number employed.]