A listless labor market has pushed thousands into real estate jobs -- but there are too many agents and not nearly enough listings
Kelly Zito, Chronicle Staff Writer
For the past three months, newly minted real estate agent Jerry Funk has been clocking about 60 hours a week, scouring the Web for homes, touring properties and sending letters about his career change to friends and family, with the hopes of landing a listing. But Funk, a 56-year-old former contractor, has yet to sell a house. "You don't just get your license and make a six-figure income," said Funk, of Oakland. "Just thinking you're going to stand on a corner and someone will list a house with you -- that's not going to happen." That's because the corner is increasingly crowded. Thousands of Californians, faced with a listless job market and buoyed by a relatively low barrier to entry, have turned to a career in real estate, hoping to cash in on the state's booming market. The result? Depends on where you sit. For new agents and old, competition is stiff, and money is harder to come by. For consumers, the glut of agents makes it easier to negotiate lower commissions. All told, if interest rates rise, and the market cools, the bursting ranks of agents could be thinned dramatically. Since 1999, the number of Bay Area Realtors has surged 44 percent, according to the California Association of Realtors, from 21,700 in 1999 to the current 31,200 -- a figure equal to the population of Pleasant Hill. In the same period, DataQuick reports the number of home sales in the nine counties increased only about 10 percent, from 119,000 to 131,000 -- meaning there are about four transactions annually for every agent in the region, compared with nearly 5.5 deals per agent in 1999. And the crunch is probably even worse than that, because data are available only for Realtors -- a quasi-professional, organized subset of real estate agents that represents only one-third of all licensed agents in the state. Funk, who traded a hammer for a real estate license because of spiraling workers compensation and liability insurance costs, is confident he'll be among those left standing if the housing market flags. On the other hand, his wife may take on a second job to help support him during the first few years on the job. But even agents with just a few years under their belts say they have a distinct advantage over the newbies -- a track record. In nearly four years as a San Francisco agent, Katharine Holland has polished her sales tactics to a high sheen. It's the little things, she says: Fresh flowers at open home tours, bottles of champagne for her clients at closing and the $240 she spends out-of-pocket to cover a buyer's one-year home warranty. The former high-tech marketing executive says that edge will help if Bay Area housing sales decrease, which Holland thinks is likely if interest rates rise or the local economy slackens. "With how competitive the market is right now ... buyers are throwing money (at houses)," Holland added. But if listings become scarcer, "right away you're going to lose (real estate agents) who can't survive." So far this year, Holland has sold nine houses worth a total of $5.5 million, all gleaned through referrals. Tight competition for listings is nothing new. But as housing continues to boom, and the Internet allows consumers to explore everything from commission percentages to 3-D house tours, agents are increasingly under the gun. In fact, many sellers interview up to five agents before signing a contract. In an industry where the saying "You list, you last" is a mantra, that can be a painful lesson for the uninitiated. The struggle doesn't end with listing homes. For those agents representing buyers, the competition can be even more grueling. In San Francisco's Richmond District, a duplex recently listed for nearly $900,000 garnered 22 offers. The victorious agent was no doubt pleased with the roughly $1.1 million final bid. But that left 21 agents who didn't get to crack open the bubbly. "This is one of the toughest markets I've seen in 22 years," said Jim Hedges, a sales manager at Prudential in San Francisco. On a recent evening, Hedges added that he had stopped by his San Francisco office around 10 p.m., and there were a handful of new agents working busily. Real estate has become the new gold rush. "The people who want to get into the business look at the people making big money," said Fred Martinez coordinator for the real estate education program at City College in San Francisco. "What they don't see is there are very few people making good money and there are a lot of people who are barely making it." A small number of agents make $1 million a year or more, and many earn closer to $100,000 -- but new agents may bring in as little as $35,000 or less in the first few years, after splitting their commission with their broker and paying for advertising, health care and insurance, according to interviews with several local agents. What's more, there is growing evidence that discount and online brokerages such as Emeryville-based Ziprealty are squeezing commissions. Although there are no local data available, Real Trends, an industry newsletter, recently found that the national average sales commission had dropped from 6 percent in the early 1990s to 5.12 percent in 2002. Some new agents are so desperate for a sale, they'll accept 1 or 2 percent commissions, down from the customary 3 percent said Liz Lucero, a Castro Valley agent. Amid such competition, Lucero, who started in real estate in 1998, adds, "Even I'm a little scared. I don't know if I have the following of someone who's been an agent here for 20 years." Nevertheless, thousands of people are flooding into the industry. One reason is there are few barriers to entry. California requires candidates to complete a 45-hour class before taking the state real estate license exam. Within 18 months of passing the test, an agent must also complete two more classes at 45 hours each, bringing the total to 135 hours. In contrast, to become a hair colorist, one must complete 1,600 hours of training before taking the state cosmetology test. The economics of the business also encourage brokerage houses to hire as many people as they can. That's because a broker, who oversees agents and who must sign off on each transaction, generally splits the sales commission (typically the seller's and buyer's agents split a fee equal to between 5 and 6 percent of the sale price) 50-50 with new agents (over time, agents get to keep more -- sometimes as much as 80 percent). Hence, if a firm has 10 agents who each sells five $800,000 homes in a year, the brokerage could pocket $480,000 if the firm kept 40 percent of each 6 percent commission. If the brokerage has 50 agents who sell at the same rate, that firm now grosses $2.4 million. The dynamics in a hot market are clear. But what happens if the housing market sags? Specifically, many experts predict housing demand -- particularly in high-priced coastal areas -- will downshift as interest rates rise. That could create an even larger surplus of agents. In past slumps, the number of real estate licensees has dropped dramatically. Although comprehensive historical data for the Bay Area are unavailable, the number of statewide real estate licensees plunged from about 336,000 in 1995 to 295,000 in 1997 as home prices across California stagnated. By year's end, the state Department of Real Estate projects there will be 400, 000 active licenses. "History tells us that at some point (the number of licensees) is going to peak, and it's going to start declining again," said Tom Pool, spokesman for the agency. The hordes of mortgage brokers also are expected to dwindle. Since peaking at 4,000 statewide four months ago, membership in the California Association of Mortgage Brokers has dropped by 1,200, though it's not clear whether that's because of market forces or new management of the group's renewal program. San Francisco mortgage broker Leon Huntting, who described as "order takers" many who jumped into the fray during the recent refinance boom, estimates the number of brokers could tumble by 25 percent or more, leaving behind yearly paychecks that, at the peak, soared into the millions. Few pundits foresee an outright housing collapse in the Bay Area. However, Scott Anderson, a senior economist at Wells Fargo, recently wrote that if jobs and incomes were to languish, a 7 percent interest rate could crimp Bay Area home prices by about 11 percent, or an average of $60,000. Among incurably optimistic new agents, however, those numbers mean little. Amy Petras, another new agent who works with Funk at Windermere Real Estate in Pleasanton, just completed her first sale -- a $475,000 house in Concord. Even if the economy stumbles, "people are still going to buy and sell homes" said Petras, 28, adding that further competition might push more part- timers and potential retirees out of the market. Funk also has had some small successes, including last week meeting a Berkeley woman who is shopping for a home in the $1.25 million range. At the same time, he's pragmatic about his prospects in an industry where conventional wisdom says 10 percent of agents conduct 90 percent of the business. "I'm not considering that I'm going to fail," Funk said. A few moments later, he added with a laugh, "But I hope you don't call back in a year, and they say, 'He's not here anymore. He's a successful street sweeper.' "
