Realtors & Buyer's Markets

Realtors & Buyer's Markets:
Feeling Sellers' Pain

It was the best of times, it was the worst of times.
--Charles Dickens

In a Buyer's market, Sellers' pain is Buyers' gain. And the vast majority of Buyers today are represented by Realtors, too (acting as a Buyer's Representative).

So it seems fair to ask:

Why isn't a Buyer's market, with dropping prices and lots of inventory (at least in most parts of the Twin Cities), as good for Buyer's agents as it is bad for listing agents (representing Sellers)? (Of course, most agents typically play both roles.)

The short answer is, for some Realtors, it is. Especially for agents representing lots of first-time Buyers, this is a once-in-a-lifetime market. However, for many experienced agents, this a trying market (to say the least).

Here are three obvious (and perhaps not-so-obvious) explanations:

One. Commissions are based on home prices.

To dispense with the obvious, Realtors' income, at least collectively, is a direct function of home prices. When the average Twin Cities home sale (vs. home -- BIG difference) falls from $220k in 2006 to $165k today -- a drop of 25% -- Realtors' income falls 25%, too.

Of course, Buyer's markets are also frequently characterized by a drop in sales volume -- especially in the early stages (look at Manhattan now). That delivers a second blow to Realtors' incomes.

"Fatigue Factor"

Two. Balky Buyers. I'd characterize the mood of my recent buying clients as "cautious" or even "anxious" rather than "celebratory." They are naturally pleased -- if not delighted -- by how much house they can buy now.

However, they're equally nervous about home prices falling further. Depending on their job security, they're also worried about the recession hurting (or eliminating) their income.

As a result, Buyers today seem to be viewing more homes, and taking longer to make purchase decisions, than when the market favored Sellers. The net result -- at least for their agents, if not for them: an increased "fatigue factor."

Three. Realtors tend to identify with Sellers more than Buyers, because of how the business works (and used to).

Until perhaps 20 years ago, Buyer's agents didn't even exist: if you sold residential real estate, your client was always the Seller, even if the agent worked with and otherwise assisted the Buyer.

Even today, when Buyer's agents are rapidly reaching parity with Seller's agents, it is the Seller who pays both agents' commission (who split again with their respective brokers). So, there's what could be called a "vestigial" identification with Sellers.

Feeling Sellers' Pain

Too, as Realtors gain experience, their client mix often shifts from mostly Buyers to mostly Sellers ("agents who list, last").

That's so because Sellers tend to favor established Realtors. After all, who would you trust to sell your $300k (or $1.3M) home: someone who's done it three other times, or someone who's been selling homes for 10 years?

Given that real estate is a famously transient business -- four out of five Realtors are out within five years -- over time, the nucleus of the Realtor ranks becomes dominated by experienced Realtors whose clientele is weighted towards Sellers.

When they hurt, their Realtors feel their pain . . .