Nobody really grows up saying, ‘I want to be a real estate agent,’” said Fanny Montalvo, managing director of sales at residential brokerage A.C. Lawrence & Co. and a former information technology recruiter. Still, “a couple years ago everybody was getting their real estate license,” she said. “Today, those people are no longer in the business.”
This, of course, has been one of the central narratives of the real estate boom-and-bust: the surge of inexperienced agents profiting off quick-selling properties, followed by a reorganization of the industry that flushed out newer and less-skilled agents.
This month, The Real Deal took a closer look at this oft-repeated truism, examining the state of New York City’s real estate labor force.
Data shows that during the downturn, the number of agents (technically called salespeople, agents are the lowest rung on the real estate sales ladder) fell sharply. During the same time period, however, the number of brokers — who have more experience and training than agents — held steady and, in some years, increased. That suggests that the industry did indeed see a survival-of-the-fittest purge of less-experienced professionals. Plus, data shows that during the downturn, the earnings gap between agents and brokers widened.
Now, rookies have begun returning to real estate, but this time around, they are having a much harder time making money, while seasoned brokers continue to reap the biggest rewards.
And while compensation is more volatile in the real estate business than it is in other industries, employment in the industry fell less during the recession than in New York City as a whole.
Overall, the result of the recent boom-and-bust has been that “the rich got richer and the poor got poorer,” said Chris Peters, director of sales at Prudential Douglas Elliman.
‘Darwinism at its best’
There are now some 25,673 licensed real estate professionals in New York City, according to figures from the New York State Department of State, which handles licensing. That includes 12,073 residential and commercial brokers and 13,600 agents. While the state does not break down which side of the industry those brokers and agents are on, the vast majority are assumed to be residential.
To become a licensed real estate salesperson in New York State, individuals must take a 75-hour training course. Licensed brokers must have two years of experience as a salesperson or three years of experience in the industry, and take an additional 45 hours of training.
A broker’s license is required to open a brokerage, and it can also communicate prestige or knowledge, but it doesn’t entitle someone to a higher commission split or more earnings than a salesperson. Top residential producers John Burger of Brown Harris Stevens, Carrie Chiang of Corcoran and Raphael De Niro of Prudential Douglas Elliman, for example, are all associate brokers; that means they have the extra training but are not the sponsoring brokers, or brokers of record, for their firms. (Technically, that person is the only one who can be called “a broker,” although those rules are rarely observed in common parlance.)
In recent years, the number of agents has fluctuated far more wildly than the number of brokers, suggesting that brokers hung on to their positions in the real estate business, while agents fled the industry.
During the financial crisis, the number of agents plummeted, falling nearly 30 percent from 16,928 in 2007 to 11,947 in 2009.
“You had people just drop out of the profession,” said Jonathan Miller, CEO of appraisal firm Miller Samuel.
In comparison, the number of brokers fell only 3.2 percent between 2007 and 2009, from 12,715 to 12,309, and has stayed in the same ballpark since.
The number of agents has started climbing again, increasing 7.6 percent between 2010 and 2011, though there are still notably fewer than before the crash.
And, enrollment at the New York Real Estate Institute in early 2012 was up 12 percent over the same period the previous year, according to the real estate school’s marketing manager, Marina Tokar. That’s partially because, as The Real Deal has reported, the industry is now seeing an influx of people who have been laid off from other jobs.
“They think, ‘Why not? I’ll try this. I don’t have to get hired by another employer,’” said Karin Posvar Picket, a senior vice president at the Corcoran Group and 18-year real estate veteran.
But that doesn’t mean these newly minted agents will be able to make a living. In the last year, employment in the New York City commercial and residential real estate industries has been growing at a modest 1 percent, said Jason Bram, a Manhattan-based senior economist with the Federal Reserve Bank of New York, citing state labor department figures.
On the residential side, the number of licensed real estate agents and brokers dwarfs the number of transactions occurring. There were 13,815 licensed brokers and agents in Manhattan in 2011, but only 10,161 sales of co-ops and condos in the borough, according to appraisal firm Miller Samuel. While those figures don’t include rentals or townhouse sales, it’s clear that many of these new agents cannot be making a living in the business.
“You’ve had a surge in new agents … in a market that isn’t seeing a significant increase in sales activity,” Miller said. “So that’s taken some of the edge off the income potential, simply because there are more agents.”
Not only did agents leave the industry, but the ones who stayed made significantly less money than their broker counterparts — and have not bounced back as readily, even in a recovering market. (Since the majority of agents and brokers are independent contractors, their income comes from commissions, rather than salaries.)
Between May 2007 and May 2010, the most recent figures available, average earnings for brokers in the New York City metropolitan area grew more than 9 percent, from $128,850 to $140,810, according to the U.S. Bureau of Labor Statistics. Average earnings for agents, however, dropped 6 percent during that time, from $84,450 to $79,300. (Since the data include counties in the suburbs, the compensation figures are likely on the low side for Manhattan.)
It’s counterintuitive that anyone’s earnings would increase with the market in a tailspin, but industry experts said because of the hurdles of selling a home during the downturn, clients placed a premium on brokers’ experience and their expertise.
At Elliman, the top 30 percent of brokers made more money the year after the crash than they did the year before, Peters said, “because everyone wanted to hire the best brokers.”
Plus, with so many leaving the industry, the remaining brokers benefited from a relative lack of competition. “How many ways can you cut up a pie?” Miller said. “If you have fewer people, everybody gets a bigger slice.”
Cathy Taub, an executive vice president at Stribling & Associates, got her associate broker’s license in 2002. Though she conceded that her 2009 sales were down because of slower activity in late 2008, she said that 2010 and 2011 were “very strong years.”
“I do think that is due in part to being established in the industry,” she said. “In a challenging market, sellers and buyers feel more secure working with experienced agents and referral business has been quite important.”
Meanwhile, the so-called armchair agents, who were used to selling homes with little effort, floundered in a tougher market, insiders said.
“It’s Darwinism at its best, isn’t it?” quipped Keller Williams NYC CEO Eric Barron.
The brokerages themselves may be partly to blame for the widening gulf in income between brokers and agents, sources said, as some firms focused on filling desks during the boom, without properly vetting newcomers’ abilities.
“Many firms believed, ‘Let’s hire and let’s worry about weeding out after the fact,’” said Barron.
On the residential rental side, veterans benefited from enduring relationships with building owners, which gave them the ability to “control the listings,” said Douglas Wagner, executive director of leasing at Bond New York. “With experience come long-term relationships. I really believe that in this town especially, the brokers that control the property are the ones that make the most money.”
The wider industry
The real estate industry as a whole accounts for a relatively small slice of New York City’s labor pool, but it can be particularly susceptible to outside economic factors, economists said.
As of this past December, 117,500 people worked in real estate in New York City, up from a six-year low of 114,600 in January 2011, according to the federal labor statistics, which count commercial and residential brokers, landlords and others in the tally.
Home purchases can be deferred when economic times get tough, unlike grocery shopping or car repairs. Real estate professionals are “not like auto mechanics, where the demand for their services is much more inelastic,” said James Brown, a labor market analyst with the state Department of Labor. Economic fluctuations have far more “dramatic” impact for real estate than other industries, he said.
But unlike other professions, a drop in sales doesn’t necessarily spell layoffs in real estate, because most brokers and agents are independent contractors, not employees. Instead, “what happens is real estate brokers get paid less,” the New York Fed’s Bram said.
New York City real estate has also fared better than real estate nationwide, in terms of sales, prices and its job market. Across the U.S., employment in the industry declined about three times as steeply as the local rate between early 2008 and 2010, Bram said, citing state and federal labor statistics.
That is partly thanks to the high number of rental transactions in the city, compared to the rest of the country, experts said. Not only has the rental market taken off, but rental transactions lend themselves to newbie agents, while experts can fall back on them if they need to, sources said.
In a 2009 report, the New York City Labor Market Information Service — a research collaboration between the New York City Workforce Investment Board and the Center for Urban Research at the Graduate Center of the City University of New York — projected that the number of city agents would grow by 5.8 percent and the number of brokers would grow by 2.4 percent by 2018.
“We’re going to be reading over the next several years about the economy increasing, improving, getting better, unemployment coming down, but slowly,” Miller said. “However, housing has the legacy of bad lending practices hanging over it that keeps it from being in lockstep with the economy, until it gets fixed.” TRD