We were recently offered the email addresses of 1,300 real estate agents, mined from their company websites, who operate in the Hamptons real estate brokerage industry. You can’t label the real estate industry as our local economy’s largest employer as, technically, real estate agents are independent contractors, eating only what they kill. The numbers suggest, however, that real estate is the region’s dominant occupation, if not pastime. By far.
Of course this caused us to start thinking… that’s a lot of people. How many of these 1,300 actually make a living in the real estate business?
Only a small handful of agents operate at the market’s highest echelon, generating hundreds of thousands of dollars, if not millions, for themselves on a consistent basis. That leaves the vast majority of agents competing for the crumbs. And if the adage is true, that 80% of sales are generated by 20% of the salespeople, then the thousand or so agents who aren’t generating 80% of the total commission dollar cannot help but find it a tough go. For most, real estate must primarily be a way of earning extra income, rather than making a living, all the while hoping for the big deal that makes the work worthwhile.
Here’s the data…
For the 12 months ending December 2010, 1,986 properties changed hands, representing $2,829,000,000 in value, in the Towns of Southampton, East Hampton, Shelter Island and Southold.
Of that value an estimated 25% is non-commissionable, not involving a broker. This leaves $2,121,750,000 in commissionable deal value. An average commission rate of 5% results in $106,087,500 to be split between the agent and his broker. Assuming the agent shares 60% of that gross commission, we are left with about $63 million to be divided among 1,300 equally performing agents, or, $48,000 in commission income for the year, per agent. Hardly enough to support even a modest Hamptons lifestyle.
But what about that adage, that 20% of the agent pool accounts for 80% of the deal value? It gets grim at this point.
The calculation results in an average commission of $20,401.00 distributed to each of the hapless 80%.
It must be then, that most real estate agents in the Hamptons use their real estate license to supplement their income, not depend upon it for a livelihood. And this raises questions that we’ll address in a future post.
(Market data provided by Suffolk Research Service, Inc.)