Real Estate Agents and Managers

SIC 6531

Companies in this industry

Industry report:

This classification includes establishments primarily engaged in renting, buying, selling, managing, and appraising real estate for others.

Industry Snapshot

Real estate agents and managers assist people who are purchasing, selling, leasing, financing, and building places to live. The industry also includes agents and managers who work on commercial real estate, including high-rise office buildings, shopping centers, industrial plants, ranches, medical centers, museums, and theaters.

The real estate industry employs hundreds of thousands of full- and part-time workers in the United States, including real estate agents who assist buyers and sellers of property, mortgage brokers who assist with financing, leasing agents who lease residential and commercial real estate, property managers who manage the property of others, appraisers who analyze the fair market value of property, and developers who build new structures. In the late 2000s and early 2010s, more than 2 million real estate agents held licenses in the United States.

The overall health of the real estate industry is closely intertwined with swings in the economy. As businesses grow, they generally acquire more real estate to expand their plants and hire more workers. The supply and demand of available homes, office buildings, and other real estate are strongly influenced by the availability of financing for developers who develop land into residential and business properties. Therefore, during periods of tight credit and declining economic activity, real estate activity is low. Changes in tax laws and interest rates also have a great impact on the real estate industry.

As the second decade of the twenty-first century began, U.S. real estate agents and brokers--like most other Americans--were waiting for a recovery in the economy. Those in the real estate industry had profited from the boom in the mid-2000s, brought on by low interest rates. In 2005 the industry posted its fifth straight year of record housing sales, selling 7.0 million existing homes and 1.2 million new homes, up from 6.4 million and 1.0 million, respectively, in 2004. In 2004 real estate firms collected $6.1 billion in commissions. However, sales came to a grinding halt when the housing market collapsed in 2006, bringing with it low housing prices, thousands of defaulted loans and foreclosures, and what was to be called the subprime mortgage crisis. Existing housing sales had dropped to 5.1 million by 2007, and new home sales reached only 776,000. In addition, the country entered a recession that many compared to that of the 1930s. Although by late 2010 real estate agents and brokers were looking to get back into business, the rebound in the real estate industry was expected to be a slow one.

Organization and Structure

Real estate is a service business involving a variety of professionals who act in concert to bring about the purchase, sale, financing, leasing, or construction of property. It can involve residential real estate, commercial real estate, industrial property, agricultural land, or vacant lots.

Real estate brokers or agents generally earn their income from commissions on the purchase, sale, or leasing of real estate. In most states, a real estate broker holds an advanced license and manages an office of real estate agents. The agents have less experience and work under the supervision of a broker. When the agent earns a commission, it is usually split between the agent and the supervising broker. The term "realtor" is a registered term belonging to the National Association of Realtors (NAR), and only brokers and agents who belong to the organization may use the term. As of 2010, NAR's membership exceeded 1 million.

Homeowners usually consult with one or more real estate agents when trying to sell a home. The agents discuss with the homeowners the price at which the property might sell, develop their plans for marketing the property, outline the strengths and weaknesses of the property, and determine how the property compares to other homes on the market. The seller then selects one agent to market the property and represent his or her interests when it comes to negotiating a contract of sale. The agent and the seller sign a contract authorizing the agent to act on behalf of the seller and market the property in exchange for a specified commission upon the sale of the property. If a buyer is not found for the property, the agent does not receive any commission.

Moreover, buyers of residential real estate generally contact one or more agents to scout neighborhoods for homes fitting their requirements in terms of size, price, location, and amenities. The agent then represents the buyer in negotiating a contract and assists in obtaining inspections of the property by experts, such as structural and termite inspectors, and may assist the buyer in obtaining a mortgage loan.

Some real estate agents are relocation specialists and work primarily to assist individuals who are relocating to another geographic area. They must have extensive knowledge of school facilities and other neighborhood attributes in order to properly serve their clients. They are sometimes paid by an employer that is relocating its employees.

Commercial real estate agents work in a similar fashion when the purchase or sale of commercial property is contemplated. This could include nearly any type of property used in a business. Commercial real estate agents' knowledge must include those factors of special concern to businesses, including available housing for employees, school facilities for employees' children, and the availability of an appropriate labor force.

Leasing commercial real estate is another area in which many real estate agents are employed, particularly in major metropolitan regions. The leasing agent's purpose is to keep the building fully occupied while obtaining the highest possible rental rates. This job requires the agent to have a thorough knowledge of the rental rates in the local market and to keep abreast of anything that may affect the market. Local laws affecting real estate development and rent control laws have significant impact on the real estate market, and agents must also be knowledgeable of any changes in such laws.

Leasing procedures vary, but the agent generally receives a commission based on the total value of the lease. The longer the lease term, the higher the commission. Office leases generally are for longer time periods than residential leases, often having a term of 3 to 15 years. The leasing agent must advertise the property and use every possible sales tool when leasing a brand new property, because it is important to the owner that the building be rented as quickly as possible without long exposure in the marketplace.

A large branch of the real estate industry involves managing property owned by others. Leasing commercial property is often one of the functions of a property manager. The modern-day property manager acts as an adviser and agent of the owner and is primarily concerned with establishing rental rates, advertising and leasing the property, and negotiating leases. Property managers also collect rents; make sure that mortgages, taxes, insurance premiums, and other bills are paid; act as liaisons to tenants; and make sure the building is maintained in good working order. They supervise and hire the building staff and may contract for janitorial, engineering, security, and refuse services. They often do the bookkeeping for the property and prepare periodic financial reports for the owner. Owners of office buildings, shopping centers, apartments, and other income-producing properties usually hire a real estate firm to manage the property.

The appraisal of real estate values is a specialized segment of the real estate industry. An appraisal might be done to determine the value of a home that an individual wants to sell, or it may be done at the request of a lending institution that is considering providing a mortgage loan to a prospective buyer. Appraisers use accepted methods to determine the value of a piece of property and generally express an opinion on the fair market value, insurable value, or investment value of the property. Real estate appraisers visit the property, search public records, and interview those with knowledge about the property and the surrounding community, taking into consideration the structural quality and overall condition of the property. Any trends in real estate or imminent changes in the community that could influence the value of the property are also taken into account when appraising the property. Many appraisers specialize in particular types of property, such as residential properties, commercial office buildings, or shopping centers.

The real estate industry experienced strong growth during the last half of the 1990s, spurred by low interest rates for real estate loans. From the beginning of 1997 until the middle of 1998, home sales grew each quarter. However, confidence in both the residential and commercial segments of the market dropped in the second quarter of 1998. According to a survey by the Federal Deposit Insurance Corporation (FDIC), this change was largely attributed to assessments that conditions were unchanged from the previous quarter, rather than improving, as had been the case throughout the previous year. Expansion in the field responded to these trends, with 13 percent of residential real estate firms opening new offices in 1998, whereas only 3 percent shut down an office.

Like many other industries in the 1990s, real estate saw its share of acquisitions and mergers among the larger firms. Nevertheless, small, local establishments remained the norm. In 1999, 83 percent of the firms in the field operated from only one office, and 60 percent of them had five or fewer agents. Only 22 percent of real estate establishments were affiliated with a regional or national franchising operation.

There also was a strong move toward diversification of business activities, as well as toward providing services beyond those of the traditional agent/broker roles. Many of the largest real estate firms began to offer their clients title insurance, mortgage loans, and similar extended services. Brokers and agents who represent only buyers of real estate also grew in number and were represented by the National Association of Exclusive Buyer Agents.

Real estate brokers also benefited from using the latest in computer technology. By the late 1990s, the entire industry was basically computerized, with the information about all of an agency's listings routinely available on computers. In addition, real estate advertisements, complete with photographs and listing information, began to appear routinely on Internet sites. About 64 percent of residential real estate agencies had listings on REALTOR.COM, sponsored by the National Association of Realtors, in 1999.

More consumers used the Internet as a tool in the home-buying process in the early 2000s. According to the NAR, 41 percent of buyers used the Internet to narrow down home choices. One study in California showed that 46 percent of Internet buyers, the largest segment, were non-Hispanic whites who also made up 60 percent of traditional buyers. Asians made up 30 percent of Internet buyers and accounted for 19 percent of traditional buyers. Hispanics made up 18 percent of Internet buyers and 16 percent of traditional buyers. Native Americans and African Americans accounted for 6 percent of Internet and 5 percent of traditional buyers.

On another front, realtors fought pressure from banks that wanted to become more actively involved in the real estate market, as allowed under the Gramm-Leach-Bliley Act of 1999. While realtors suggested that banks would introduce significant conflict-of-interest issues, banks argued that they would provide healthy competition to the marketplace.

The traditional real estate business also felt pressure from the proliferation of discount realty firms that offered reduced services for rates often well below the traditional full-service commission of 5 to 6 percent. Although discount brokerages accounted for just 2 percent of the market share in 2005, their numbers were growing rapidly and caused concern for traditional realtors. While traditional brokerages argued that they provided far superior services and negotiated a better selling price, discount brokers either offered full-service for reduced fees or reduced services for significantly reduced fees. For example, a discount broker might charge a 4 percent commission to list the home and assist in the transaction, but the seller might be responsible for actually "selling" the house by personally advertising and organizing open houses. Although the selling price might be slightly lower, discount realtors argued that sellers more than made up the difference on reduced commission fees. Some discounters primarily provided services over the Internet, thus reducing high overhead expenses.

In 2001 there were approximately 2.3 million licensed real estate agents, an increase of 10 percent from 2000 and the first large increase in 15 years. One reason for the increase was that the housing market was strong in 2001 and 2002, while others sectors struggled in a weak economy. Continued low interest rates, which were at one time the lowest in 40 years, housing affordability, and a gradual turnaround in the economy were other major factors for this sector's success.

Existing home sales of 5.3 million in 2001 were the highest level since 1968, when sales tracking began. Home ownership peaked in 2000, with 67.7 percent of Americans owning homes. Two reasons that so many consumers bought homes were (a) interest rates were low (although many of these were adjustable interest rates [ARMs], which would go up in two to three years), and (b) requirements for a loan were minimal. In other words, many consumers with bad or no credit could obtain one of these so-called subprime mortgages.

The housing boom continued into the mid-2000s. In 2005 a record 7.0 million existing homes were sold, in addition to more than 1.2 million new homes. With demand exceeding supply in many markets, house prices were pushed upward, thus also increasing realtors' percentage-based commissions. The median sales price for a home jumped 42 percent between 2001 and 2005.

The party ended in 2006, when the housing bubble burst, bringing home prices down. At the same time, many of the low interest rates expired and thousands of homeowners found themselves in a dire situation: They owed more money than their house was worth, and the increase in interest rates had raised their mortgage payment. In addition, the economy was entering a recession, and unemployment had started to rise. Many homeowners began to default on their loans, and because thousands of these loans had been packaged and sold to investors on Wall Street, "negotiations over late mortgage payments were bypassed for the 'direct-to-foreclosure' model of an investor looking to cut his losses," according to Ryan Barnes of Investopedia. Foreclosures reached record highs. By September 2009, 14 percent of all mortgages in the United States were either delinquent or in foreclosure. In the second quarter of 2010 alone, more than 895,000 foreclosure notices were filed on U.S. properties, according to the Los Angeles Times.

Amid this climate, lenders were in the hot seat, but realtors were not off the hook. Many questioned why realtors had allowed consumers to obtain loans that they knew could became unaffordable. For some the answer was obvious and was the same as for the lenders who participated in the free-for-all: money. In their defense, realtors (who were not also buyers' agents) noted that they worked for the seller and that it was not their job to know all the ins and outs of the loan that the consumer is obtaining--that was the lender's responsibility. In addition, the NAR issued press releases containing subheadings such as "Realtors Have a Strong Stake in Preventing Abusive Lending." Indeed, the foreclosure rates that resulted in empty or "blighted" neighborhoods made it more difficult for realtors to sell in that area and brought housing prices down. Despite the myriad of opinions and analyses of the subprime mortgage crisis and realtors' role in it, as the first decade of the twenty-first century closed, the real estate business and related financial services were in dire straits.

Legislative-related issues also affected the industry and involved the Real Estate Settlement Procedures Act (RESPA). During the early 2000s the Department of Housing and Urban Development (HUD) tripled the number of staff dedicated to enforcing RESPA, and in 2008 new regulations were published that required such measures as upfront disclosure of broker payments and tighter standards for deviation from good-faith estimates. Most of the new rules related to disclosure and other problems realized during the subprime mortgage crisis of the late 2000s. The situation also prompted the passage of the Mortgage Reform and Anti-Predatory Lending Act of 2009 and the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, which contained hundreds of new rule changes.

Current Conditions

By the end of 2009, "about one in seven homeowners owed more on their mortgages than their homes were worth, seriously delinquent loans were at record highs, and foreclosures exceeded 2 million," according to the Joint Center for Housing Studies. Problems continued into 2010. The NAR reported that existing home sales in July of that year reached only 3.84 million, the lowest on record since 1999. However, figures from later in the year were more promising. In September 2010, for example, existing homes sales rose 10 percent to 4.53 million. Still, as Diane Swonk of Mesirow Financial told The Bond Buyer in October 2010, "We are a long way from seeing the end of the financial crisis and its aftershocks. The housing market provides one of the most visible and disturbing examples."

Nevertheless, those in the real estate industry were "cautiously optimistic" about the future, according to the 2010 State of the Real Estate Industry forum. Margaret Kelly, CEO of RE/MAX, noted some key issues for realtors at the forum: "To be successful in the current housing market, real estate professionals need to educate themselves about buying and selling distressed properties and working with investor buyers, who are a significant part of the market. Education is critical."

Industry Leaders

Although real estate agencies tend to be local operations, a few national and multinational firms generate a large volume of business. Realogy Corporation, which was spun off from Cendant Corporation in 2005, was the largest corporation involved in the field in 2010, owning both Century 21 and Coldwell Banker. In 2010 Century 21 operated more than 8,900 offices in 70 countries, whereas Coldwell Banker had more than 3,500 franchised brokerages. Realogy generated $3.9 billion in total revenue in 2009 and employed 10,300. In 2007 Realogy was bought out by Domus Holding for a reported $9 billion. 87,000. RE/MAX Realty, based in Denver, also had a large presence, with more than 100,000 real estate agents operating franchises across the United States and in 70 other countries. A private company, RE/MAX's annual revenues were estimated at $12.5 billion in 2003.

Workforce

As of 2010, every state and the District of Columbia require that real estate brokers and agents be licensed. They must complete educational courses in the fundamentals of real estate and pass a written examination. Appraisers of property financed by federally regulated lenders must be certified within their states.

Most of these people work on a commission or fee basis rather than as employees. Many real estate agents begin working part-time because of the fluctuating income the work provides. Though agents are essentially independent contractors, most are affiliated with a nationally known or local brokerage firm. According to the Bureau of Labor Statistics, about 517,800 people were employed as real estate agents or brokers in the United States, and about six out of every ten were self-employed.

As sales commissions can be high on many properties, successful real estate agents have the potential to earn large amounts of money. However, only a small percentage of agents actually do so. In 2008 the median annual income was $41,150 for agents and $57,500 for brokers.

Although growth in the field was booming during the early and mid-2000s as many people entered the industry to benefit from the hot market, the real estate market is notoriously cyclical. In addition, increased use of technology, including Internet-based services and cell phones, made realtors more efficient and able to handle more clients at one time.

America and the World

In the late twentieth century, the U.S. real estate industry began to tap into the market within the former Communist countries of eastern Europe, such as Russia and Hungary, where ownership of private property had become legal. Beginning in 1993, the Institute of Real Estate Management (IREM) entered into partnerships with real estate associations in those countries to help in the training of real estate personnel and the adoption of national standards. By the early 2010s, the IREM had chapters in Brazil, Canada, Japan, Korea, Poland, and Russia and international partner relationships in Brazil, Canada, Chile, China, Japan, Korea, Russia, and Ukraine. The National Association of Realtors (NAR) conducted similar activities in eastern Europe and entered into agreements with Bulgaria, the Czech Republic, Hungary, Poland, and Russia in the late 1990s. By 2010, the NAR had established partnerships in almost 60 countries. In addition to industry-wide efforts such as these, individual firms entered the real estate markets of other countries.

After the financial crisis of the late 2000s, foreign buyers became more important in the U.S. real estate industry. For example, pending home sales in Miami-Dade County increased more than 23 percent in October 2010 as compared to a year earlier, based on figures from the Miami Association of Realtors, and many of these sales were by foreign buyers, especially those from Brazil. Affluent Brazilian buyers were drawn to Miami properties that were similar to those in San Paolo or Rio de Janerio but much cheaper. According to a November 2010 article in The Real Deal, realtors were making the trip to Brazil to attend real estate workshops and fairs, form alliances, and find buyers. Britain was also an important market in the early 2010s. Data from Moneycorp, a foreign currency exchange broker in Britain, an increasing number of Brits were purchasing U.S. property, especially in Florida and on the West Coast, due to higher exchange rates of the British pound.

© COPYRIGHT 2018 The Gale Group, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. For permission to reuse this article, contact the Copyright Clearance Center.

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