Did you catch this article in the NY Times on Monday, "Middleman Now Rich Man in Real Estate Boom"? Summarizing, the piece describes how the fortunes of realtors have risen in tandem with real estate values. According to Steve Murray, editor of Real Trends, last year realtors in the U.S. collected $61.1 billion in commissions, up 43% from the amount garnered in 2000.
At the same time, not all realtors make "rock star" income. Less than a third make in excess of the median U.S. household income of around $43,000. This is principally due to the oversupply of brokers. In Westchester County, NY...where the Times article is focused...there are 9,701 licensed agents, up 23 % since 2000. Last year in Westchester County, only 6,157 homes were sold...which likely means that some agents sold no homes during the year.
Prestige worse than stockbrokers. At the same time, the "prestige" of being a realtor still stinks. In a Harris poll last year, survey participants were asked which professions had the most prestige. Professions that were deemed to be "very great" in prestige were: scientists-52%, doctors-52%, firemen-48%, teachers-48%, military officers-47%, nurses-44%, police officers-40%, clergy-32%, business executives-19%, lawyers-17%, union leaders-16%, actors-16%, bankers-15%, journalists-14%, actors-10%, stockbrokers-10%, realtors-5%.
A question from a financial advisors' standpoint...Are realtors good investment prospects? Although it is dangerous to make sweeping generalizations, in many cases realtors are less than ideal investment prospects...for these reasons:
- Like many sales professionals (financial advisors included), realtors seem to have high spending needs. The realtor mentioned in the aforementioned NY Times article is a case in point. This 51 year-old realtor has 9 vehicles...a white Bentley Arnage, four Mercedes, two Jaguars, and two Range Rovers. He also owns 28 pairs of Alain Mikli eyeglasses, that are color-coordinated with his wardrobe. (I've never even heard of "Alain Mikli eyeglasses.")
- Realtors like to invest in real estate. Many investors like to stick with what they know, and realtors are no exception. Given the relative performance of real estate versus equities over the past four years, this tendency would be doubly true today.
- Many realtors are part-timers. For every realtor who is truly a "rock star", and selling 25+ houses per year...there are ten who sell just a handful, or none.
Of course, there must be some realtors out there who are terrific investment prospects. Some may have the prescience to want to take some of their real estate winnings off the table, and look to diversify their holdings. Others may want to look at some of the investment solutions that would have particular appeal to their circumstance, e.g. the Solo 401(k).
In the words of Mark Twain, "All generalizations are false, including this one."
What is a Realtor to do now-a-days?
Posted by: John Sardy | November 04, 2005 at 09:13 AM