Published on: May 15, 2021
BY TED C. JONES, PH.D.
Housing sales brokerage is big business. The National Association of Realtors (NAR) reported 5.64 million existing home transactions in 2020 at an average price of $331,900. This equates to $1.872 trillion in total sales. EffectiveAgents® examines a large sample of transactions each year and found the average seller commission in 2020 was 5.656 percent. At that average, sales commissions on existing home sales totaled $105.88 billion last year.
To review the EffectieveAgents’ article on commissions click https://www.effectiveagents.com/2020-average-realtor-commission-rates-fees/
Real estate commissions are negotiable and vary.
Businesses, jobs and markets are almost always defined as a result of the interaction of supply and demand. Copious quantities of supply dilute markets (and reduce incomes) while tight supply in the face of growing demand bodes well for everyone but buyers. Residential real estate sales are no different, with the interactions of supply and demand forming boundaries on the business and earnings for real estate agents. While total commissions are a function of price and the number of closings – i.e total dollar volume of sales -- typical individual real estate agent income is also predicated on how much competition there is among real estate professionals. Hence local market activity plus the number of agents impacts the potential earnings capacity of real estate brokerage professionals.
To identify the potential best (and worst) markets for real estate agents, WalletHub analyzed real estate market activity, expectations and transaction volumes using multiple metrics. They focus on both Job Opportunity & Competition within markets and Real Estate Market Health. The 22 included metrics and respective weightings are detailed below. Some of the metrics seem conflicting or counter to industry practices such as Monthly Average Starting Salary for Real Estate Agents. Since most real estate agents are independent contractors, there is not usually a salary but rather sales commission income. There are also several forward looking metrics that require forecasting that can deviate from expectations.
Job Opportunity & Competition 60 Points – or 5.45 Points for Each Metric
Real Estate Markets Health 40 Points Total, 2.67 Points Unless Otherwise Noted
Data sources in the WalletHub study included U.S. Census Bureau, Bureau of Labor Statistics, Zillow, Indeed, Projections Central – State Occupational Projections, ATTOM Data Solutions (RealtyTrac), InvestmentFourMore, Google Ads, Federal Reserve Bank of Cleveland, the New York Times and WalletHub research.
Using these data, WalletHub examined 179 U.S. cities (including the 150 with the largest population and with at least two cities from every state). Only the city proper is considered and not other cities in the surrounding metro. Each metric was graded on a 100 point scale, with a 100 rating assigned to most favorable conditions for real estate agents. The metrics were then weighted by the points assigned. Some of these data were only available at the state level. The top 25 markets and respective scores are listed in the first table based on WalletHub’s selected metrics and methodology.
The most challenging 25 markets for real estate agents are listed in the next table based on the WalletHub metrics and methodology.
Click here for a pdf summary metrics for all 179 cities. Different weightings and metrics would likely alter the outcome of these rankings. That said, I do question the methodology given the ranking of Corpus Christi, Texas as the most challenging market of the 179 cites in the study. The following graph shows the median price and total number sales in the prior 12-months for the Corpus Christi MSA based on data from the Texas Real Estate Research Center at Texas A&M University. Sales across the Corpus Christi MSA were up 19.6 percent in the 12-months ending March 2021 and the price was up 20.4 percent. They also had listings given the 2.0 months supply. In comparison, the U.S. overall saw housing sales rise 6.9 percent and median price up 17.2 percent in the same period with a similar 2.2 months inventory. Price and sales numbers are shown for the U.S. and Corpus Christi in the following two graphs.
In the 12-months ending March 2021, while the U.S. posted the best pace of home sales in 14 years, Corpus Christi sold more homes than anytime in history. The last graph shows total sales on a trailing 12-month basis since 2002.
To read the full WalletHub study click https://wallethub.com/edu/best-worst-cities-to-be-a-real-estate-agent/18713 In all fairness, the 2021 real estate home sales market continues to have a very positive and optimistic outlook, with the primary concerns being the potential for rising interest rates and lack of listing inventory. It is hard to sell something that is out of stock. Because of the pandemic, housing realized the highest intrinsic value in lifetime as we spent more time at home. As vaccinations and herd immunity grows, that intrinsic value will no doubt lessen. Still, housing is hot and with interests rates remaining near record lows the prognosis is good.