Thursday, July 16, 2009

Sacramento Real Estate Agent Commission and Salary Estimates

I've been having some interesting conversations lately about the issue of agent commissions, so I did some research on the topic. The Sacramento Association of Realtors (SAR) currently boasts a roster of "over 6000" members. SAR never mentions agent activity levels, however, and one agent I talked to claimed the vast majority of SAR members make few or no sales per year. (SAR has not replied to an email request for membership levels in past years.)

This claim was easily verified by examining the monthly SAR statistics for escrow closings. For example, in 2008 there were 20,526 escrow closings, for a total value of $4.732 billion. Assuming a generous 2.75% commission per agent-transaction, and a 75%-25% agent-broker split, that comes to an average annual salary of $16,266 per member!

In order to better estimate the earnings of an active SAR member, I ignored their membership level claims and instead used SAR's closing volumes and price data. Using the same broker split and commission values as above, and assuming one closing per month per agent, yields the following chart:

As you probably expected, agent compensation has mirrored the boom-bust shape of the bubble. Annual compensation in 2005 and 2006 was nearly $100,000 per active agent, falling to $58,500 last year. Using a rough annualization, compensation is poised to drop this year to around $42,500. Talk about cliff diving!

Two other interesting notes:

-Using this estimate of activity suggests there are less than 3,400 active SAR members. Since SAR charges $560/year in dues, that means they're collecting over $1.5 million/year in dues from idle members!

-Because my sales records database doesn't go back far enough, I can't explain the strange spike in transaction values for the May-August 2003 timeframe. I'll do some further research, but for any fraud investigators out there, this would be a good area to focus on.


Max said...

Too many exclamation points?

Buying Time said...

When we were shopping for houses, we tried to get a little creative with the commission...but a home builder, made it sound like there were CA statutes that govern who gets commission and how/when it applies.

Does anyone know if this is true?

(As usual, nice work Max)

Anonymous said...

There's no statute, but the home builder will have a general agreement with agents out there if the sales staff is in house, if their sales reps are an outside agency, they are under contract. Work the price, the builder is working on what they pay for commission as that is a cost of their sale.

If a resale agent took you to the new home project and introduced you, that agent (and the agents broker) usually gets something.

Keep in mind that the commission rate for new homes is generally less than the resale market but the overall marketing costs for new is at least 5-7% including commissions, cost of staffing the models 7 days a week, advertising, etc. plus a multi million dollar model complex with maintenance and utilities.


Anonymous said...

Who really cares about RE commissions anyway.

The real economy killer has been indecision... starting at the top... the administration.

Did you know that most of the first stimulous package has still not been distributec and that GDP is 1% below their projections?

Every time the PHeD or Obama or Treasury makes an "I think we might..." statement over the past year the market dived - indecision is the killer.

Our local legislature - they have to make cuts, a bad decision is better than no decision. Where's the budget?

Look to China. They put 586 bil directly into projects and bingo, a GDP spurt! Not a lot of lot of lobbying there.

Have a good weekend!


Buying Time said...

So back to the issue at hand...why does the seller pay the commission? Is there an actual reason, or is it done that way, cause it's always been done that way?

Anonymous said...

The seller is responsible for the commission similar to almost every commission sales job - there's an employment contract with the sales person or listing broker. That person has a carrot to staff the job every day for free until a sale is made to compensate them. Their performance is measured and compensated by making the sale.

Some sales are part base pay, part incentive.... like waiters, program/project managers, baristas, etc.

I love incentive pay. Its what finally got most of my employees off the personal email and personal cell calls and focusing on clients and business. Its what gets me off the blogs.

So anyway, when you bought the house, the builder was already under contract with the agent/broker at a specified rate. That contract is enforcible by contract law and/or the CA labor commission. That rate can be renegotiated during the purchase negotiation, if you put your commission offer in writing, and I expect the answer would have been no, as both the seller and the broker would have to agree. You weren't prepared to walk based on that?

Why would the seller protect his agents commission? Because he wants them to keep working it.