“In any moment of decision, the best thing you can do is the right thing,the next to best thing is the wrong thing, and the worst thing you can do is nothing.”
– Theodore Roosevelt: was the 26th President of the United States
LISTING AGENTS AND COMMISSION INCOME
**Brought to you by blogger: Ken H. Johnson, Ph.D., – Florida International University and Editor of Journal of Housing Research**
The Research
How can agents maximize their commission income? The options are straight forward. Agents can choose to specialize in selling property to people. They can choose to specialize in selling property for people, or they can choose to have a balance between listing and selling closings. Casual arguments can be made for all three approaches. Until recently, however, there was no statistical evidence to settle this argument leaving agents to rely on unsubstantiated arguments such as “list to live” and “sell to survive”.
Johnson, Zumpano, and Anderson (2007)[1] directly investigate the question of how agents specialize and the impact of their choices on their commission income. Specifically, they investigate the effect of specializing in listing versus specializing in selling versus a balanced approach and resulting commissions.[2] Their findings clearly indicate that specializing in listing dramatically increases agent income. In fact, agents that specialize in listing average a whopping 81% increase in annual commission income over the typical agent. Interestingly, agents that seek a balanced approach experience an average annual loss in commission income of 14%. For those that specialize in selling, the loss in income is substantial at an average loss in commission income of 81% – the exact opposite performance from those specializing in listing.
Implications for Practice
For the first time, agents have clear evidence on which strategy (listing/selling/balanced) is best. Clearly, they should seek to specialize in listings as the statistical evidence indicates an increase in their annual commission income. It seems as many have suspected that time spent developing a sound inventory of listings is key to success and a long career in the industry. On the other hand, specializing in selling or producing a balance between selling and listing closings leads to less income on average.
Obviously, it is very difficult for less experienced agents to be as proficient as more experienced agents in acquiring, selling, and closing listings. But, make no mistake about it, learning how to be a good listing agent is critical to their ultimate success in the business. Therefore, while early in their career, an agent might need to “sell to survive”. They should be aware that eventually they will need to “list to live” a long time in real estate.
Endnotes
[1] Johnson K.H., L.V. Zumpano and R.I. Anderson, Listing Specialization and Residential Real Estate Licensee Income, Journal of Real Estate Research, 2007, 29:1, 75-89.
[2] They define specialization in listings as the ratio of closed listing transaction to closed selling transaction that is greater than 1.1. For a balanced approach the ratio ranges between .9 and 1.1, while for selling specialization the ratio is less than .9.
WHY DO FAMILIES ACTUALLY BUY A HOME?
THE MAJOR REASONS PEOPLE BUY A HOME
It means having a good place to raise children and provide them with a good education
You have a physical structure where you and your family feel safe
It allows you to have more space for your family
It gives you control of what you do with your living space (renovations and updates)
WHERE HOME PRICES HAVE DROPPED THE MOST
California cities have seen their home values drop by the largest percentage in the last five years, with some metro areas posting losses of up to 67 percent in that time period. California cities occupied six of the top 10 metro areas with the largest drops, according to a recent Zillow study based on its home-value estimates and Zillow Home Value Index.
Overall, “there will be many ups and downs in home values before this is over, and we continue to expect a true bottom in 2012, at the earliest,” says Stan Humphries, Zillow’s chief economist. “There are still hazards in the form of a full foreclosure pipeline, high negative equity, and fluctuations in demand.”
The following are seven cities that have seen home values drop the most since the housing boom, according to Zillow:
1. Merced, Calif.
July 2011 Zillow Home Value Index: $106,514
Zillow Home Value Index 5 Years ago: $328,813
Value difference (by percent): -67.6%
2. Modesto, Calif.
July 2011 ZHVI: $128,777
ZHVI 5 Years Ago: $352,599
Value difference: -63.5%
3. Stockton, Calif.
July 2011 ZHVI: $150,061
ZHVI 5 Years Ago: $404,036
Value difference: -62.9%
4. Las Vegas
July 2011 ZHVI: $117,084
ZHVI 5 Years Ago: $303,656
Value difference: -61.4%
5. Vallejo, Calif.
July 2011 ZHVI: $190,521
ZHVI 5 Years Ago: $468,071
Value difference: -59.3%
6. Salinas, Calif.
July 2011 ZHVI: $282,289
ZHVI 5 Years Ago: $664,404
Value difference: -57.5%
7. Daytona Beach, Fla.
July 2011 ZHVI: $95,193
ZHVI 5 Years Ago: $220,436
Value difference: -56.8%
MORE HOME BUILDERS STRUGGLE TO STAY AFLOAT
Sales of new homes this year are on pace to reach the lowest level on record. After peaking in 2005 at 1.3 million units, the annual rate was 298,000 units in July.
New home builders are struggling to compete against existing homes and foreclosures that are selling for big discounts – a struggle that is now going on nearly five years in some markets.
Some builders are keeping business afloat by pulling back on land purchases to conserve money as well as drastically reducing their staff.
Other builders – such as Toll Brothers, known as a major builder of “McMansions” – are looking to new ventures, like expanding into urban areas by building condos, a stronger area of growth nowadays. And some builders are offering more of a diverse mix of homes to try to appeal to the largest pool of buyers.
“The market is not deep enough or big enough to support all the builders,” Alex Barron, an analyst with the Housing Research Center, told The Wall Street Journal. “There needs to be some consolidation. I don’t think that means [mergers or acquisitions]. I just think that means there has to be a shakeout.”
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NAR TO HOST HOUSING SUMMIT
As the leading advocate for homeownership, the National Association of REALTORS® will host a summit of policy makers, industry leaders, and government stake holders to develop strategies to help stabilize and revitalize the nation’s housing market and economy.
“Homeownership is an investment in your future, strengthens our communities, and is integral to our nation’s economy,” said NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I. “Our goal is to develop solutions and recommendations for Congress and the administration so that they can develop strong housing policies to stabilize the nation’s housing market and lead the country out of today’s economic struggles.”
The event is scheduled to take place early in October in Washington, D.C. While planning is still underway, NAR expects that REALTOR® leaders will join legislators, government officials, business leaders, top industry executives, and economists to design a housing recovery plan that will address today’s critical homeownership, mortgage finance and real estate investment challenges.
A housing recovery is key to America’s economic strength, and NAR wants to make sure that any proposed legislation and regulatory rules or changes to current programs and incentives help address industry issues and don’t further exacerbate problems within the fragile real estate industry.
“To move the real estate market and economy forward there needs to be a broad discussion among all stakeholders about what needs to be done to reshape real estate in America and put the country back on the right track,” said Phipps. “We look forward to delivering valuable recommendations and solutions to promote home ownership and restore the nation’s housing industry and economy.”
Additional details about the housing summit will be posted in the coming weeks at http://www.realtor.org.
OPEN HOUSE FLYER EXAMPLE
Do you have an open house this weekend? Do you need a flyer? Let us know and we’d be happy to create a flyer for you. The flyer provides potential buyers with both Realtor and Lender information, and 3 different payment scenarios. Email my assistant, Sherrell at sayers@rpm-mtg.com with your property address and purchase price to get the flyer created. Please email Sherrell prior to 3:00 today for your flyer.
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