Traditional Brokers Quitting

The National Association of Realtors recently announced they lost more than 100,000 members since 2006.  I believe that number only represents the tip of the iceberg.  Here’s why.  For every agent who stops paying their dues to the NAR, there are several agents who are on the fence, and there is a lag between the time an agent stops paying his dues and his membership is officially terminated.

I’ve talked to friends in the business, and some have said, “I’ve not done anything in real estate in months.  I’ve been home with my (husband or wife), and frankly, I have no idea what’s going on in real estate.”  Many agents have left the business in favor of a salary so they can pay bills and support their families.  Nothing wrong with that.

Inman Real Estate News reported that brokers have been “Changing names, merging, consolidating, filing bankruptcy and closing branches . . . as literally thousands of real estate brokerage companies went out of business during 2008.”

The Seattle Business Journal reported that “Since the end of last year [2008], about 2,800 Washington agents have abandoned the business, a decrease of about 9 percent, and hundreds more have put their licenses on hold, according to the state’s Department of Licensing. . . . Many others are toughing it out by moving from well-known brokerages to smaller firms that allow them to keep 100 percent of their commissions.

On a website called “Housing Crash” we have this 2009 report.  “In Cape Coral, Fla., where only 30 percent of agents sold even a single home last year, real estate agents are ‘dropping out’ daily, says local Realtor Ginette Young. The Oregon Association of Realtors reports an 11.5% decline statewide of licensed agents in the past year.  Many of those who leave quietly shelve their signs. Others go out big: In Gilbert, Ariz., the fastest-growing city in the fastest-growing state, RE/MAX 2000 closed 13 offices throughout the Valley of the Sun, laying off at least 20 employees and scores of contract agents right before Christmas. The company couldn’t meet its expenses.”

A large Portland Broker with 56 agents filed bankruptcy recently.  “The office expansion and billboards? . . . Those expenses turned into the company’s biggest unsecured creditors.  . . . ‘We ran out of money to pay them,’” Haskins said. “The business just wasn’t viable.”1

“Jack Jentzen never saw it coming. Four years ago, as a real estate agent in Elgin, Ill., he was enjoying the rewards of the most frenzied U.S. housing market in decades, and money poured in. Now he’s fighting to keep his home. . . . Tens of thousands of agents have been forced to quit the industry in the past couple of years. Some are enduring their own agonizing foreclosures. Agents who had staked their fortunes on galloping home sales now struggle to afford health care, utilities and other basics.”2

What will happen in Sequim and Port Angeles?  Unfortunately, more of the same.  This is a nationwide experience, and real estate brokers in Clallam County are not exempt from the market downturn.  Fortunately, our real estate market has not suffered as greatly as many others.

A business can operate only so long in the red before it is forced to close its doors.  When fixed and variable expenses exceed income for too long, there is trouble looming on the horizon.  A ship can take on some water, and it can take on small amounts of water for longer than most people think, but eventually the ship begins to tilt, and it slowly sinks.  It doesn’t matter how persistent the captain tells his crew, “We are in this for the long haul.  We will survive.  We will not sink!,” the laws of physics and of nature will prevail.  A sinking ship sinks.

For real estate brokers that have taken on massive quantities of debt, and who have huge monthly fixed expenses, these expenses are water filling the ship.  I think one of the great burdens on a brokerage today is expensive traditional advertising that no longer is as effective as it used to be.  The wise broker threw those heavy burdens overboard long ago to survive.  The foolish broker is still telling his agents, “We are in this for the long haul.  We will survive.  We will not sink!,” but the laws of economics will prevail.  A failing business fails.

Ignorance of reality will not save us.  I love this quote from Yvon Chouinard, the founder of Patagonia:

There’s no difference between a pessimist who says, “Oh, it’s hopeless, so don’t bother doing anything,” and an optimist who says, “Don’t bother doing anything, it’s going to turn out fine anyway.”  Either way, nothing happens.

Let’s face it, real estate commissions are drastically down, and there is no reliable data to indicate that real estate commissions are suddenly going to save these brokers and their agents.  While some agents will leave the business entirely, other agents who can weather the storm will transfer their licenses to brokers who have less overhead and where they can keep more of their real estate commissions.  I predict more agents will be working out of their homes or low cost office sharing arrangements.  The other possibility is an entirely new brokerage model.

I’m pleased that my own brokerage is one of the  lowest overhead brokerages in all of Sequim and Port Angeles, and at the same time I believe I have the largest Internet presence of any agent on the Olympic Peninsula.3  While my business model has great promise for this market and even more so when the market comes back, I fear for some of my colleagues.  Some ships appear to be taking on too much water.

This recession is not good news for real estate agents, but when the dust settles, consumers of real estate services will be left with agents who are full time professionals committed to their clients.  For consumers this means agents with more experience, better track records, and  greater longevity than the “flock” of licensees who got licensed and made money in easier times.  I also believe that more consumer oriented brokers will evolve, which is also to the benefit of consumers.

Our free enterprise system has a way of cleaning up imbalances.  The system is often harsh, but in the long run prices find balance, poorly managed brokers quietly go away, outdated business models fade, and slowly health to the real estate industry returns.  This too shall pass, and in the long run we will all be glad for the results.