Why do agents choose to upgrade their license to become brokers?

  • To earn a higher fee split at their current brokerage (37%, 11 Votes)
  • To add prestige for upgrading clientele (33%, 10 Votes)
  • To open their own brokerage (30%, 9 Votes)

Total Voters: 30

It will come as no shock to you, Dear Reader, that 2023 is seeing reduced sales volume as tenants became less willing to buy and, in response, lower home prices accepted by sellers. But the effect of 2023’s correction in the property market on real estate broker numbers is only recently coming to light.

As of May 2023, there were 4% (2,300) fewer independent brokers licensed in California than a year earlier, according to the California Department of Real Estate (DRE). During the same time, the number of brokers employed at brokerage offices — broker associates — increased slightly.

Chart update 08/02/23

May 2023May 2022Annual change
Broker associates18,86418,566+1.6%
Independent brokers51,16553,431-4.2%

Why are independent brokers quickly becoming scarce, even as the number of broker associates grows?

Greater earnings flow to licensed brokers, whether as the result of negotiating a better fee split percentage with their employing broker or simply taking on the risk of running their own business — self-employed and acting alone or by employing other licensees.

On the one hand, the allure of broker independence is easy to spot and includes:

  • greater earning potential without a fee split;
  • more flexibility; and
  • greater career control.

However, the movement of independent brokers away from managing their own overhead, expenses and responsibilities to partnering with an employing broker is reflective of the rapidly changing real estate market.

In a single year, 4% switched from being independent of anyone to either:

  • being dependent on a broker for a collaboration in an obvious attempt to meet the challenge of the buyer’s market — and the looming foreclosure and short sale market;
  • acting solely as an investor-owner of real estate; or
  • exiting the real estate market altogether.

Related article:

The rise and fall of real estate brokers and agents


2023’s shifting real estate market to continue

While an economic recession is not yet official, the housing market recession now forming the early stage of a buyer’s market began in mid-2022 — and will continue to reduce brokerage incomes from services in 2023-2024.

Sales volume year-to-date (YTD) is 31% below a year ago as of May 2023. Further, prices are 4%-7% lower than a year earlier, but not nearly low enough to attract tenant turnover. These compounding factors means fewer and reduced sales earnings per broker until seller price reductions meet buyer willingness.

Watch for prices to fall back in the months ahead following the brief spring seasonal bounce of tenant start-up buying. Home prices received by sellers will slump below 2019 pre-recession levels in 2024, likely finding a bottom in 2025 — when negative equity conditions for pandemic period buyers begin to peak.

In the meantime, brokers who depend on fees during the recession for a living will adjust their strategy for services they offer. Successful tactics include catering to necessitous sellers saddled with negative equity — and to employed buyers willing to participate during the economic downturn.

Brokers can also consider taking a look at how they do business in their own offices.

Brokers consolidate

To remain profitable with fewer sales to rely on, brokerages need to:

  • identify and kill activities draining their valuable time and energy, like dead-end listings;
  • conduct an audit of expenses and identify costs to be cut and services and staff consolidated; and
  • sort through business disruptions to identify income opportunities by analyzing sales data for solutions.

As independent brokers are already learning, consolidating activities can also include closing down shop and pairing up — associating — with another broker to cut costs and share resources — and clients.

For employing brokers, receiving more broker associates into the fold is good practice. They are generally more experienced with clientele, as well as better educated and well connected.

The alternative — at which large brokerage operations are well practiced — is to depend 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 green agents burned through their family members and social contacts without learning how to develop a viable client base.

The number of list-and-run agents crept higher in the pandemic years of 2020-2021, with brokers spending little time training and supervising new agents and more time mining them for prospects.

A lazy way of doing things, list-and-run agents will not work to keep brokerages afloat during the housing market recession.

Brokers who learn to cut overhead and eliminate operating inefficiencies while beefing up their staff of performing licensees will be in the best position for the next uptick in annual sales volume; not likely to arrive until 2026.

Related article:

Agents and brokers: recession-proof your life