Why expensive housing prices aren’t good for most real estate agents

A hot housing market has attracted thousands of new agents. For most of them, the gold rush won’t be so lucrative.

As real estate agent Takarah Culp missed on home after home last summer, she started to wonder if she was doing something wrong. 

Why expensive housing prices aren’t good for most real estate agents

Culp obtained her real estate license in February 2021, after banking a few months of savings and resigning from her job in the insurance industry. She nabbed a spot with a metro Atlanta firm just as houses started selling for tens of thousands over the asking price.

Her first clients put offers on homes in August, and they weren’t accepted. Neither were their next few offers. It was completely normal in the competitive market, but worrisome for Culp, who was running up her credit card bill to cover her expenses.

It wasn’t until October, when a client’s offer was accepted over multiple bids for a downtown condo, that she could finally breathe.

“I thought, like, ‘I finally got something,’” she told The Hustle. “It wasn’t me.”

Takarah Culp (via Zillow)

Culp is part of America’s great pandemic real estate agent boom.

From January 2020 to January 2022, the number of agents in the United States increased from 1.38m to 1.53m, according to the National Association of Realtors.

The gain of ~150k agents was 3x as large as the increase in the prior two-year period and continued a trend of nearly unfettered growth in the profession since the Great Recession. 

There are now more real estate agents in America than ever — 1.57m, as of June — ~13% more than in 2006, when the housing bubble was at its peak.

The draw of an expensive housing market was an obvious lure for many new agents. With prices increasing rapidly in most markets last year and sales surpassing the totals for recent years, the reward for helping someone buy or sell a house was as high as ever. 

But many who jumped in discovered a surprising truth: The splashy seller’s markets that produce high commission rates don’t lead to greater success for most agents.

The ‘social waste’ of a real estate boom

When housing prices go up, so do the number of real estate agents. 

We’ve seen this phenomenon play out multiple times over the past 50 years:

  • Between 1970 to 1980, housing prices nearly tripled and the number of home sales doubled to ~4m. During the same period, the number of licensed Realtors with the National Association of Realtors (NAR) increased by ~7x.
  • During the early 2000s housing bubble, America’s count of Realtors shot up from ~718k (1999) to ~1.37m (2007).

The country has seen a similar jump during the pandemic boom. NAR’s monthly count has reached a new record almost every month since August 2020.

Singdhi Sokpo / The Hustle

Some changes are likely not apparent in the numbers.

University of California, Berkeley economics professor Enrico Moretti says that licensed agents who lay low during the busts become active during boom times, adding more competition.   

The reason why agent numbers and participation rise along with prices comes down to a couple of simple factors:

  • The barrier to entry in the profession is low. In most states you can get licensed by completing a few dozen hours of coursework and passing an exam.
  • Realtors get paid off commission, with agents for the seller and buyer typically splitting ~5%-6% of the total cost of a home. Commissions increase proportionally with home prices. 

In a more expensive market, a typical agent would seemingly be poised for success: Sell the same number of homes as an average agent did the previous year, and you’ll make more money. 

But that’s usually not how the results work out in real life. 

While home sales volume (6.12m units in 2021) and the median sales price ($396.8k) have both shot up in recent years, the median agent’s annual income has actually decreased, considering inflation.

In 2000, the median Realtor brought in $47.7k (~$76.4k, adjusted for inflation), according to the National Association of Realtors. Last year, that figure worked out to $54.3k.

Singdhi Sokpo / The Hustle

“You enter the market because you [believe you] gain more,” Moretti said. “But then the competition increases over time. It’s only after the fact that you can see there’s not extra profit.” 

Moretti believes this recent housing boom is leading to similar results he encountered in a 2003 study he co-authored with Chang-Tai Hsieh. 

The economists compared the 1990s housing markets of Boston and Minneapolis, finding that the average agent in a city with higher housing costs was less productive than an agent in a lower-cost city

  • In 1980, Boston Realtors averaged ~6 transactions/yr. In 1990, with housing prices 2x as high compared to 1980, they averaged ~3 transactions, selling fewer houses per hour worked.
  • Moretti and Hsieh calculated that a 1% increase in average housing prices in a city led to a 0.7% decline in a typical Realtor’s productivity. 

Moretti calls this type of situation “social waste.”

Buyers and sellers are worse off for owing more commission, and the real estate agents who get the extra commission (“rent” in economic terms) typically don’t benefit in the long run either.

“They spend money and time looking for leads and trying to get new clients [and] ultimately they are facing more competitors,” Moretti said. “So the person doesn’t make more money. It’s a wash.”

But not every agent is worse off. Real estate is an industry defined by big earners, including during expensive housing markets. 

The real estate whales

The Upper Cumberland region of Tennessee, teeming with waterfalls and forested state parks, sprawls east from the edge of Nashville all the way to the western outskirts of Knoxville. 

“It’s just a pretty drive either way,” Donnita Hill, an Upper Cumberland native who has been a real estate agent since the late 1970s, told The Hustle.

Growth from the Nashville area was already spreading to the Upper Cumberland the last few years. Then, during the pandemic, with remote workers seeking a respite from urban life and urban housing costs, the trend accelerated. 

Prices and offers for listed houses went way up. Time on the market fell way down.

For Hill, 2021 was one of the best years of her career: She closed on ~$45m, compared to ~$30m in the years before the pandemic. In the first half of this year, she has closed on ~$37m.

A selection of listings offered by Hill (Donnita Hill) 

In the six counties Hill covers, she says that she and a handful of other agents, out of a total of ~600, account for as much as 25% of all real estate transaction volume.

It’s a real-life anecdote that exemplifies an oft-stated belief in the real estate world. 

“The nature of the business is just so fiercely competitive,” Lawrence Yun, chief economist for the National Association of Realtors, told The Hustle. “Maybe 20% [of agents] do very well while 80% [are] maybe just barely getting by.”

Some real estate agents have suggested the ratio is even more favorable to a powerful class — that as few as 7% of agents account for 93% of home sales volume.

Whatever the ratio, most industry insiders agree the 2020 and 2021 real estate markets were particularly tilted to the upper class of real estate agents that drive a huge chunk of sales.  

  • Although sales of existing homes increased to 6.1m units in 2021, the highest number since 2006, housing inventory reached an all-time low in December. That month there were just ~483k active listings for 1.56m agents.
  • The shortages made the market ideal for sellers, and agents who represent sellers tend to have strong reputations and lengthy Rolodexes.

Singdhi Sokpo / The Hustle

Meanwhile, most new and lesser-known real estate agents had to focus on buyers, drumming up clients from posting brochures around neighborhoods and shaking hands at open houses.

They were at more of a disadvantage than normal because homes were selling so quickly — and often for cash offers — leading buyers to seek out experienced agents whose names might’ve carried more weight on an offer sheet or who could find a home before it was listed.     

Of course, there are always exceptions. Some new agents reached the heights of their profession during the pandemic boom, like Rafael Llorente.

Llorente, who lives in Austin, Texas, lost his job in the service industry in spring 2020. He was married with three kids, in debt, and unemployed. When a friend suggested he join a local brokerage firm, he figured it was his best opportunity. 

“It was nothing about what the market was doing,” Llorente told The Hustle. “I just had blinders on. I just wanted to be really great at this thing.” 

Rafael Llorente was one of 2.4k new Realtors in the Austin area in 2020, according to the Austin Board of Realtors. Another 3.2k joined in 2021. (Courtesy of Austin Board of Realtors) 

Austin’s real estate market was one of the wildest in the country.

With the area facing record-low inventory in 2021, the median home price escalated by 31% from 2020. By the end of 2021, on any given day, there were ~2.5k-3k active listings and ~18k area agents vying to buy and sell homes — 4k more than pre-pandemic.

Despite the competition, Llorente thrived, searching through real estate agents’ social media promotions to find out about listings before they hit the market and cold-calling builders and other agents to get inside scoops about homes before anyone else.  

In 2021, he closed on 54 transactions for ~$30m. Area real estate agents told Llorente it was the greatest “rookie year” Austin had ever seen. 

The contradiction of a cooling market

Layoffs started coming for the real estate industry almost as soon as interest rates ticked up this year.

In June, Redfin cut 8% of its workforce. Compass planned to lay off 10% of its staff “due to clear signals of slowing economic growth,” the company said in a statement. 

Julia Pollak, chief economist at ZipRecruiter, says impending job losses will likely be highest among mortgage lenders followed by appraisers and builders and then real estate agents. She believes that the layoffs will be more acute in markets that saw the most rapid growth in prices.

Singdhi Sokpo / The Hustle

So, between the potential for job loss or loss of clients and the reality that winning offers were hard to come by amid the competition of 2020 and 2021, was becoming a real estate agent a bad decision over the last two years?

Pollak says not necessarily.

Many people became real estate agents because their other options — whether driving for Uber or opening a cafe — were limited.  

“Entering the industry was a rational move while the market was hot,” Pollak told The Hustle. “How were they to anticipate that mortgage rates would rise so quickly and end the party so soon when the top monetary policymakers didn’t see this coming?”  

And the agents who can hang on during the market correction may reap the rewards.

In a buyer’s market, with housing supply up and overbids unlikely, less-experienced real estate agents will have an easier time attracting clients and closing transactions.     

Artemisa Boston, a longtime agent in St. Paul, Minnesota, who had her highest-grossing year ever in 2021, searches for a word to describe what’s likely to happen to average real estate agents as the housing market ebbs into this new direction and settles on “contradictory.”

“Probably we are going to lose a lot of agents,” she said. But for the agents who have enough savings to stick around, she added, “this is going to be a better market for them.” 

Boston closed on 299 homes for $79m in 2021, well above her 2019 figures of 210 homes for $47m. (Courtesy of Artemisa Boston)

Culp, the Atlanta-area real estate agent has been watching this scenario unfold. She took a post-licensing class last year with Keller Williams with ~25 other agents.

A year later, she estimates nearly half have stopped working in real estate, a rate far higher than the 10-12% churn the National Association of Realtors sees in a given year. 

But Culp didn’t get into the business to chase the soaring prices, and believes she’ll have greater success in the cooler market. She hopes to close an average of one home per month. 

The last few weeks, her outlook has already brightened. Culp had three clients put offers on homes in late June.

Two of them were accepted.

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