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A dramatic drop in realtor income has driven a systematic decline in marketing spending, data shows

By On July 13, 2010 · 5 Comments

I found myself wondering the other day about the economic impact of the decline in the real estate market on agents.

The reason for my curiosity is pretty clear: The Real Estate Book business depends on the income of real estate agents. The agents who are going to invest in high-visibility, high-impact marketing tools like The Real Estate Book are going to be among the high-earners. Over the past three years, the scale of our business has dropped dramatically and rapidly. How much is a decline in income driving that decline, I wanted to know.
commission income trend.pngA lot.

Fortunately, the National Association of Realtors is exceptional at gathering a lot of information consistently. The association does several different annual surveys and is smart to keep their questions consistent, so that you can compare trends over time. While their Survey of Home Buyers gets a lot of attention, they also do an annual survey of realtors that has a lot of rich detail on how realtors are managing their business.

So I dug into the NAR data to try to scale the market. There were three clear conclusions: Commission income has dropped dramatically; the number of high-earning agents has dropped just as dramatically; and marketing spending has dropped dramatically.

First, commission income. To extrapolate trends in commission income, I took the average home price and total number of transactions from 1996 to 2009. I then applied a uniform commission rate over the series. (One could argue that average commissions are down the past two years because of the influx of bank-owned properties in the market.)

Using this formula, commission income peaked in 2005 and dropped like a stone to 2009. About 10 years of commission growth was lost in the 24-month period.

Commission income should be roughly flat in 2010, based on NAR home sales projections and a 15% drop in average price. The good news for top earners is that there should be fewer agents competing for the commission dollars, and that consumers are likely to gravitate to agents who have reliable track records and are clearly in the business full-time.

How many agents is that, I wondered? That led me to create another extrapolation to estimate the number of high-earning realtors. To calculate this number, I used the percentage breakouts from NAR’s realtor survey and applied them to the total number of realtors in each year, according to NAR.

high earning realtor count.pngAccording to this approach, the number of high-earning realtors has declined by more than 40% from the peak of the real estate market. All told, there are about 178,000 agents that make over $100,000 per years, compared to 312,000 in 2006.

This is an incredible loss of earning power. The drop in commission revenue has been accompanied by a drop in marketing spend. All told, the number of realtors that spend more than $2500 a year on marketing and advertising has declined 45% to about 200,000.

trend in annual marketing spend realtor.pngA couple of interesting trends surfaced when I dug into the distribution of annual marketing spend over the past few years, according to the NAR survey.

First, the median marketing spend was down 31%, less than the drop in commission income over the same period. This is a byproduct of realtors trying to keep up a subsinence level of marketing. The larger marketers cut their spending by 50%.

Second, realtors have not expanded their investment in online media, keeping it at about 10% of overall advertising and marketing spend.

I’m a glass-half-full kind of guy, so when I look at these figures, I’m struck by the opportunity for higher-earning realtors to increase their investment in marketing in order to increase their share of the market. But, by any account, the contraction in marketing spending by real estate agents over the past two years is difficult to process, it is so large, pervasive and complete.

 

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  • Vickeywachtel

    Very Interesting great attention to detail. Thank you

  • http://4PsRE.com Jay Zenner

    I admire your analysis. The question that I’d like to see investigated is whether the proportion of marketing expenditures has been shifting from self promotion including lead generation to marketing homes. In a buyers market you would expect the best marketers would shift to shift the emphasis to marketing their listings. I don’t think it’s happening for two reasons. First most agents never really learned how to market homes during the boom times…it wasn’t necessary…and there is too much resistance or agents are afraid to ask clients to fund marketing expenses up front in exchange for lower commissions. There’s also a classification problem. Lots of things that look like marketing the homes are really lead generation activities.

  • Anonymous

    Most real estate agents fail to take advantage of the internet as a PR campaign channel and will rely on print ads in the local penny saver or direct mail advertising as a way to get their name in front of potential clients looking to sell their homes.

    This traditional process can prove to be unsuccessful as many people begin to move away from these types of advertisements and onto the internet for their research. Of course many real estate franchises off tools to their agents to promote themselves with realtor website templates and other marketing materials, but fail to realize these all look the same when the client is looking for an agent to list their home. Because of the template look and feel, each agent website looks like the other with the same color scheme, listings and no promotional content of the agent themselves.

    Incorporating PR techniques along with the standard template website can set the progressive realtor apart from the rest in the eyes of the prospect.

    3 Things that a PR campaign should include:

    1. Satisfied customer testimonials – As clients close on their homes, the agent should ask for a small sentence or two outlining their experience and satisfaction with the agent. Placing these testimonials on their website can provide some instant credibility to the agent and their ability to service the customer.

    2. Promotional video – A small 60 second PR video can be created in a professional studio for less than the cost of one direct mail campaign. Using an unbiased spokesman touting the agent’s strengths and experience can go a long way toward building an impression that can stay with the prospect for weeks or longer.

    3. Real Estate Newsletter – Creating an e-mail subscription campaign to distribute information about the real estate market will continue keeping the agent in front of potential buyers and sellers over time. The agent is more likely to be contacted when the time is right as they have built a rapport over time.

    Realtors need to do more than the traditional business card at the grocery store bulletin board to get new clients. Creating a PR campaign that creates a web funnel of prospects to your door is not as hard as it sounds and can cost a great deal less than the traditional marketing most agents are following.

  • http://www.npsads.com Realestateps

    I am not a real estate agent but for over 25 years I have worked in marketing primarily in the real estate industry. I have worked with agents who are just starting out and I have worked with many top agents who have earned in excess of $500,000 per year. What I do know, and was actually stated in the last REALTOR magazine for June …..those Realtors who spent the most money last year marketing themselves, made the highest commissions. This was not just for Internet advertising but included print advertising as well.
    Recently I have been including Call Source Numbers to track actual phone call responses on various marketing mediums. The results brought many eyebrows up in my real estate community. Measuring Online advertising to Print advertising the call ratio was 50/50. For every Internet call response they received… there was a call from a Print source. I wanted to measure an actual phone call versus an email as phone contact gives the agent a better chance of securing a Buyer or a Listing opportunity. For any real estate agent or office to eliminate their print marketing is basically eliminating 50% of their business. One day we may be a culture where everything will be paperless but in 2010 we are not there yet.

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