The rise and fall of real estate brokers and agents

In December 2023, California had 89,225 active real estate brokers, about 1,000 less than one year earlier. Today, the number of active brokers continues to decrease, in search of a bottom since declining from the January 2010 peak at 109,500.Conversely, the number of active sales agents steadily climbed from a 2014 low of 171,100 to a November 2022 peak of 226,300. As of June 2024, active agent numbers decreased slightly to 221,600.firsttuesday forecasts a dramatic fall back in sales agent licensing in 2024-2026, the result of reduced sales activity and branch office reduction by employing brokers. Watch for the next big wave of licensees to arrive — first with the return of speculators, then end-user homebuyers — to propel the housing market into its next expansion beginning around 2028.Updated October 7, 2024.Chart update 10/07/24

	Jun 2024	Jun 2023	Annual change
Active Agents	221,600	223,400	-0.8%
Active Brokers	88,400	89,500	-1.2%

high-endrolex.com The above chart tracks the number of active real estate brokers and agents licensed in California, based on data released monthly by the Department of Real Estate (DRE). These numbers exclude licensed brokers who do not use their licenses, and licensed agents who are not employed by a broker.

Today’s inflated agent-to-broker ratio

In a stable market, a natural equilibrium develops between active real estate agents and brokers. This ratio has historically found balance at the level achieved in 2002: approximately 1.5 active agents for every active broker.As real estate entered the recovery phase of a market cycle in the mid-2000s, new agents arrived en masse: the Millennium Boom. The greatly inflated agent population grew to as high as 2.7 agents per broker. These individuals obtained a license with the optimistic belief that extra money was to be had working real estate.The ratio fell in the aftermath of the Millenium Boom, then reversed direction to rise again in 2014.Currently, the ratio sits at a still-inflated 2.5 active agents per active broker.In the second quarter of 2024, we are two years into continuously declining sales volume as we trudge our way out of the temporary but very disruptive pandemic economy.Keep in mind that these active licensee totals obscure the real depth of the inactive problem.Many “employed” agents simply do not report to work – as a real estate agent. Their license is left “hanging” with a broker, and they work as part timers at best, while they take up another occupation.Also, 28% of all 310,000 sales agent licensees report to the DRE as “inactive” – not employed by a broker. Yet many speculate in property as principals or negotiate purchases for family members, presenting themselves as holding a license.

Agents speculate on the market

In October 2006, 376,600 Californians held agent licenses but only 261,000 were active agents. Compare this to the more stable period six years earlier of January 2000, when there were 122,300 active agents out of 196,500 total agent licensees. The total number of agents nearly doubled, while the portion of inactive agents comparatively decreased.Rather than just providing brokerage services to other individuals, this larger contingent of 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 a property they located.Related article:

California home sales volume

Big wheel keeps on turning

For the immediate future following 2024, anticipate a return in residential and commercial real estate markets to:

• core economic principles – inventory for sale vs. buyers who are user-occupants or long-term income investors rather than speculators
• real estate fundamentals – price-to-rent and mortgage-to-income ratios as well as proper net operating income (NOI) capitalization rates for evaluation

The chart above shows today’s licensee population is well above the standard agent-to-broker ratio of 1.5:1. Expect the current ratio to drop gradually in 2024-2027, following a downward path of home sales volume and prices.Related article:https://journal.firsttuesday.us/home-sales-volume-and-price-peaks/692/

Licensing in an economic recovery

Will this 1.5:1 agent-to-broker ratio return after a trough develops in licensee population after the mid-2020s?Probably. The boost in home prices experienced during the pandemic caused a classic increase in optimism among the prospective and existing agent population. A greater percentage of new licensees arrived while existing agents renewed their licenses. That enthusiasm waned, then fell apart after the mid-2022 drop in real estate sales.The public perception of a healthy real estate market when property prices increase also lures more individuals to become real estate agents. New sales agent and broker licensing jumped in 2021, and in 2023 attained their highest levels since 2007.Related article:

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Boomtime distractions and consumer protection

Insufficient mortgage loan originator (MLO) regulation and oversight to protect consumers and public institutions from financial harm creates a relaxed mentality, leading eventually to another destructive real estate boom. This will likely happen in the years following 2027 as newly-minted agents begin to rapidly multiply. With any boom, the standards applied by real estate service providers diminish.It is up to the DRE alone to actively protect society from adverse licensee conduct. To do so, the DRE needs to become more aggressive during business recoveries.Initially, during boom times, a tightening up of the agent licensing exam is needed to control a too-permissive pass rate for agents. This move will limit the licensing of new agents to the most qualified, dedicated and committed individuals.Further, legislation is needed to mandate apprentice training for, say, two years before a new agent may operate alone as the brokers agent. Appraiser oversight already requires this apprenticeship work to gain sufficient experience to avoid harming the consuming public.Whether the DRE is politically able to do this is questionable, as they face opposition from big brokerage offices and entrenched trade groups. Large brokerage operations require a constant high number of agents-for-hire to blanket the market when sales momentum takes hold.Related article:

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Homeownership rates in the cycle

 California demographics, and the extremely low 2024-2025 demand by occupying homebuyers, point to a return of “2021 excitement” in the field of real estate in the coming recovery around 2028 and beyond.Even in the pandemic era, the rate of buyer-occupant homeownership had dropped from 61% in 2006 to 55% in 2022. Homeownership rates will continue to suffer for several years due primarily to lack of inventory for sale sufficient to bring prices down to levels willing buyers, well, can pay. Here, construction in California of hundreds of thousands of dwelling units is the cure.Further, as mortgage interest rates continue their current half-cycle of a persistent long-term rise, downward pressure is continuously reasserted on pricing for all property. Brokers and agents representing investors interested in acquiring income property to hold long-term will find investors have shifted from relying on earnings produced by resale profits and refinancing to relying on annual earnings from rental income operations. Related article:

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Market variables are changing

For the next years into 2028, fewer brokers and agents will be needed to service the purchase and sale of real estate. This slowing demand to acquire real estate will be partially offset by the increasing needs of landlords for property management and owners for mortgage originators.Capitalization rates investors apply to a property’s NOI to price property suitable for long-term ownership are moving upward. It is simply investor adjustment to the multi-decade cyclical increase in long-term interest rates and the risks of owning real estate for the long haul. The risks include illiquidity, active participation in property management, income and expense decisions, and adverse changes in local demographics. In the past, these risks were covered by profits from rising property prices generated primarily by the pre-2013 decades of declining mortgage rates, not by real estate fundamentals.Related article:

Real estate speculators during recessions and recoveries

Agent and broker population, past and future

2021 saw home sales volume leap as a result of historically low interest rates, individual stimulus checks and a fierce fear-of-missing-out (FOMO). However, the pandemic stimulus fuel was quickly spent, and sales volume in early 2022 began a collapse which will likely continue at least through 2026.Sales agent numbers accelerated rapidly during 2021, and through mid-2022, with an influx of “quick-buck” real estate agents. Expect to see these new-career agents drop out — as has already begun — and prices decline through 2026. Easy money, all the time, does not exist in any industry due to perpetually recurring business cycles.For licensees to survive financially, they need to embrace more sustainable, long-term real estate strategies. These include focusing on improved services to locate property for buyers and non-conventional sales assistance for sellers.

Industry behavior

Large single family residence (SFR) brokerage operations with branch offices have always depended on a constant flood of newly-licensed agents to fill their cubicles. These brokerage operations generate a high turnover rate for agents. Freshly-minted agents burned through their family members and social contacts without personal marketing to brand themselves and develop a viable client base.The big brokers and their office managers have been able to mitigate the eventual loss of sales production experienced by client-exhausted agents through aggressively soliciting new licensees (and all the personal  contacts who come with them) as replacements.These “list-and-run” agents also disappear from the ranks of new agents when the total annual number of new agents drops dramatically. The last such drop was in 2007-2014 before the commencement of the mid-2010’s recovery. Previously, during the peak activity years of 2004-2007, new agents were licensed at the unsustainable rate of 5,000 monthly – triple the 2024 pace.Despite this history, the number of new hit-and-run agents crept higher in the pandemic years of 2020-2021. And again, brokers spent little time training and supervising new agents and more time mining them for prospects.Related article:

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Facing economic reality

firsttuesday forecasts a dramatic fallback in sales agent licensing in 2024-2026, the result of reduced buyer, leasing and MLO activity. Watch for the next wave of licensees to arrive, first upon the return of speculators, then end-user homebuyers, to propel the housing market to its next virtuous expansion, likely around 2028.When viewed in terms of disappearing short-term agents, rather than vanishing homebuyers — the rate of homeownership statewide was stuck at 56% at end of 2023 — what appears is an economic reality which forces employing brokers to:

• shutter their least productive branch offices;
• release the weakest office managers and under-performing agents;
• attempt to locate agents who actually generate business;
• upgrade office locations and cut rent expense by taking advantage of office and retail vacancies offering ever lower rent;
• develop new profit centers with service divisions for escrow, finance, homeowner/tenant insurance, appraisal/broker price opinions (BPOs), property management, investor syndication and other brokerage services; and
• require agents to “get back on the street” to engage in the community, gather property information in greater detail from local agencies, and smoke out new leads which generate transactions.

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Fee splitting problems

Even more troubling for large brokerage operations is the bickering over brokers’ fee-splitting arrangements with their agents.In the meantime, employing brokers take in fewer dollars and shoulder the costs of overhead, promotion and servicing unmarketable property listings. The listing board offices used in the past now has a companion “buyer representation board” for agents to keep full.Gradually, the younger and more aggressive agents employed by large brokerage offices will look for new opportunities. They may become brokers or team up with other brokers and agents, transitioning into smaller flexible operations.Others with a long-term client base will join “rent-a-desk” operations to reduce the fee percentage extracted by the broker, and hopefully take home more net earnings. Pyramid-brokerage operations are risk-prone. They have a strong tendency to encourage recruitment of employed agents and reduce services rendered by those higher up the profit-sharing ladder in the office.To be cautionary, agents jumping out on their own too often do not have the business acumen to set up and operate a broker office, whether they employ agents or operate independently. Their motivation to do so is based solely on the belief, right or wrong, that their current broker is taking too large a share of the fees.

Survival and success

Brokerage offices need fewer agents to effectively service the real estate needs of the public – until the recovery of willing buyers starts to takes hold, likely in 2027.Blasphemous talk?Not at all; a pivot toward efficiency is necessary to steer a brokerage operation into full recovery stage.Brokers who market appealing property negotiate asking prices which quickly generate offers. Also, brokers who enforce written buyer=-broker representation will earn a living and prevail during an economic downturn. Such conduct, a requisite for success, is dependent on rational sellers, willing buyers, a savvy managing broker and skillful agents.During short-lived bursts of speculative fervor, discussion of a stable, disciplined office environment sounds like nonsense to brokers and agents with a short-term outlook. However, real estate is not a business where you can “fake it until you make it.” Misrepresentations by non-disclosure (or otherwise) and carelessness due to inexperience will undo you quickly, every time.Brokers who learn to cut overhead and eliminate operating inefficiencies while beefing up their staff with competent  agents and broker-associates will be in the best position for the long-term uptick in annual transaction numbers, likely to begin in 2027.Employing brokers operating successfully through 2025 will be defined by their ability to plan ahead. As practical visionaries, they will be prepared to get in on increasingly frequent closed transactions and mortgage originations as the Federal Reserve and Wall Street mortgage bond folks return to easy lending standards, now underway as anticipated.

A look ahead for smaller brokerage offices

In the near future, smaller brokerage offices with fewer than 16 agents will probably continue to recruit agents in the manner they always have.Large brokerages typically use mail-blitzing campaigns and seminars to entice both seasoned MLS agents and newly licensed and prospective agents into their branch offices.Single-office brokerages traditionally recruit by local word-of-mouth referrals. Brokers maintaining a single office with a staff of agents and broker-associates tend to have several different types of business clientele. They focus on more than the numbers game of market share to drive property owners, buyers and tenants to their office for representation.These smaller brokerage offices are the most likely to attract the more thoughtful entrants into real estate. These entrants seek a diverse long-term advantage of training and working with agents and broker-associates who work income property, land and property management as well as SFR transactions.

The broker takes charge

To operate a successful brokerage office, the broker needs to employ viable agents, those with talent and skill.It is the maturity of the agents in a brokerage business model that produces the end result sought by successful employing brokers, i.e., broker fees. As in all service businesses, the linchpin for achieving success is the ability of management to orchestrate the efforts of agents to act and earn as permitted by DRE regulations and real estate law.

Talented agents are made, not born

Brokers are best served when employing agents who practice beyond the small and limited circle of friends and family. However, some brokers ignore the responsibility to train and supervise their agents. Brokers who do not dedicate sufficient time and energy to their agents will spend time and energy replacing agents instead, a formula which fails to strengthen their own position.Brokers need to be more than distant observers limited to providing remote oversight for the agents and sharing fees. They or their administrative assistants and managers are required to supervise and police the business-related activities and conduct of the agents they employ.Related video: 

Policing of business-related conduct

Supervisory conduct by brokers and managers of their agents and broker-associates includes:

• setting production goals to be attained (listings and sales/leasing/originations);
• an initial and annual analysis of the agent’s income and expenses [See RPI Form 504];
• setting fees needed for the agent to become financially viable working solely rendering services 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 their time spent working for the broker); and
• expecting compliance reports to be prepared and delivered periodically (weekly) to management. [See RPI Form 520]

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 their broker expects of them to remain with the office. Also, the broker’s conduct demonstrates what their agents must do to maintain a competitive environment producing written employment by property owners and buyers who are ready, willing and able to deal.Further, an office environment needs to nurture a greater probability of producing closings based on written client representation, purchase agreements, leasing agreements and mortgage originations, which spell success for all involved.Read more:See RPI ebook Real Estate Matters: Chapter 2