As I pointed out in a recent post, 1,000 realtors left the real estate business in Chicago last year. I can attest to how poorly most real estate agents are doing in this market because I periodically look up the sales statistics for agents that I know and most of the time their numbers are pretty low. So, finally, just the other day I decided to try to quantify realtor performance in the Chicago market. I pulled data on the last 12 month’s closings by realtor in the entire area covered by our MLS system, which is a huge area covering all the surrounding suburbs. I then ranked the real estate agents by the dollar value of their closings.

The bottom line is that of the almost 25,000 real estate agents with recorded residential sales in the last 12 months only 3,189 agents exceeded $3 MM in sales. If we make the simplifying assumption that those agents earned 50% (their split) of a 3% commission on average then close to 22,000 agents earned less than $45,000 last year – and that is before expenses. At the national level median expenses for realtors were $5,810 in 2008. When you factor in that this is not a cheap area to live in you can see that these agents are struggling. Furthermore, as you might expect, a minority of the agents closed most of the deals.

Now this analysis comes with a whole bunch of caveats:

• I emphasized above that this focuses on agents that had recorded sales. If an agent never closed a deal in the last 12 months then they are excluded from this analysis because I have no way to know who they are. But I suspect there are quite a few who did nothing in the last 12 months.
• Assuming that these agents earned 50% of 3% on average is a very big assumption. Many agents earn quite a bit more than 50% but on the other hand the commissions might be a bit less than 3% – e.g. typical cooperating commissions are 2.5% but could be as low as 2%.
• Many of the agents that are included in this analysis might actually make most of their income from commercial real estate and maybe they just did one or two residential deals in the last year.
• Many of the included agents might be part timers
• There may be quite a few agents that are excluded because they have no recorded sales in this time period but they might actually be quite profitably employed as members of a celebrity realtor‘s team, where the celebrity realtor takes all the credit for their business (this is a common practice).
• There may be a few agents that are included above who are members of a celebrity realtor’s team but one or two transactions appear under their name for one reason or another.
• As you start to get into the really high numbers – even as low as $16 MM – you start to run into the celebrity realtors who have teams working for them, some of which do a lot of developer work. So it’s not like the #1 realtor did $171 MM of closings all by himself.

Nevertheless, I believe that this data is directionally correct as it is consistent with data provided by the National Association of Realtors. In their 2009 member profile they show that on a national basis 62% of realtors had gross income of under $50,000 in 2008, with a median gross income of $36,700. After taxes and expenses those numbers drop to 64% earning under $35,000, with a median net income of $23,200. And those numbers are all for 2008. You can bet that 2009′s numbers are going to be a bit worse.

I guess it’s no surprise that 2009 was a tough year for the real estate industry but I’ve just run across some information that gives us a pretty good idea of just how bad it was. After losing 4,000 agents in 2008, the Chicago area lost another 1,000 agents in 2009. That’s a 7.6% decline on top of last year’s 25% drop, bringing the total down to 12,054 as of early February. I guess these agents ran through all their relatives and friends – or they’re no longer on speaking terms with them.

Meanwhile, business hasn’t  been good for the brokerages either. Realogy, which is probably the largest brokerage organization, just reported a loss of $262 MM on revenue of $3.9 B. In case you didn’t know (most people don’t), Realogy is the parent organization of the following brokerages:

• Coldwell Banker
• Century 21
• ERA
• Better Homes & Gardens Real Estate
• Sotheby’s International Realty (and you thought they were high end)
• NRT

How do you charge outrageous commissions and still lose money? For starters, it doesn’t help if you have a huge overhead and spend a lot of money on advertising of questionable value. However, the biggest issue is that Realogy was taken private in 2007 by Apollo Management, a private equity investment firm. As with most private equity deals this one was heavily leveraged and today Realogy still has around $6.7 B of debt from that deal. Oh…and they have negative equity – close to $1 B worth – which is appropriate given that most of their former clients also have negative equity. Things got so bad last fall that Realogy was on the brink of bankruptcy when Carl Icahn stepped in at the last minute and saved them.

BTW, I find Realogy’s so-called strategy interesting. Either they’re not too bright in having all these brokerages that compete with one another or they’re smart enough to realize that there really isn’t any real competition between them. What do you think?

Anyway, Realogy’s woes are symptomatic of the entire real estate industry. RealTrends and Bloomberg recently reported that the dollar value of real estate commissions dropped by 6.2% last year. So, that’s about in line with the decline in the number of real estate agents in Chicago, which makes sense.

But what does all this mean for you? I’m afraid not much. There are still more real estate agents than there is productive work for them (much more on that topic in upcoming posts). And even if Realogy closed the doors on all their brokerages I maintain that it would have zero impact on the real estate industry because all those realtors would simply get new business cards with a different broker’s name on them. At least that’s the way it works with the independent contractor model (more on this some day soon also).

Two townhomes in University Village on South Campus Parkway. 6 doors down from each other. 5 months apart. Identical floorplans. One sells for $775K and the other sells for $591K. That’s just weird. How does this happen?

Normally the real estate market is pretty efficient, which means that things sell for a pretty fair price and it’s hard (but not impossible) to find bargains. But I think in this case there is clear inefficiency at work.

The first University Village townhome was listed at $828,000 and went under contract at the end of March at the higher price. BTW, it sold for $695K in August 2004. Now I’m aware that home prices have held up really well in University Village but this is ridiculous.

This first townhome was fully furnished and showed well. It amazingly grew in square footage as it changed hands from one listing agent to another – 3300 sq ft, 3400 sq ft, and finally 3500 sq ft.

When this first townhome was on the market my wife and I checked it out because we live in a 3000 sq ft townhome in the immediate neighborhood. One identical to ours had sold in 2008 for $720K. After viewing the South Campus Parkway townhome we decided it wasn’t as nice as ours:

• The layout was not as good. 136 sq ft was on a 4th floor that we didn’t have, the second and third bedrooms were larger than the master bedroom, and it had one less room on the main level where several family members may be simultaneously and need separation from each other. It sure didn’t feel like 3300 sq ft, let alone 3500.
• The first floor is partially below grade, compared to our first floor, which is entirely above grade.
• This townhome had a backyard which we didn’t but that meant that you had to maintain it and your garage was accordingly detached. We really like our attached garage – especially in the winter.
• These townhomes face the UIC sports fields. It’s a little known fact that during some sporting events the constant drone of the announcer at a very high volume can drive you nuts, not to mention the high intensity lights that are on during the night games.

So how did it sell for such a high price? Well, the listing agent tells everyone that he has some special skill but in reality he doesn’t really do anything different from any other capable realtor. In fact, if he did have a special skill in achieving a higher price for his listings then buyers would be well advised to avoid his listings. What’s more likely is that a buyer came along that was willing to pay a high price for something that exactly fit their needs. But why didn’t their agent get them a better deal? I can only speculate but it is interesting to note that the buyer’s agent in this case works in Glenview.

The second University Village townhome was listed at $579,900 and went under contract in early September. It was vacant, bank owned, needed paint, carpet and some appliances. However, otherwise it was in pretty good condition and that should have been apparent to anyone interested. However, there was one other fly in the ointment. There had been extensive water damage at some point from broken pipes and that had resulted in basement mold. The damage had been completely repaired and the mold remediated. Usually this work is guaranteed so….

Clearly the listing agent was pricing this for a quick sale. Personally, I liked the place enough that I put in a full price bid for myself. My wife and I weren’t exactly sure what we would do with it if we got it so we only wanted it if we could get it dirt cheap.

At the end of the day my conclusion is that the buyer of the first townhome overpaid and the buyer of the second townhome got a great deal. If I was the first buyer I’d be ______________.

It’s that time of year again when realtors do their annual pumpkin dropoff. Well…not all realtors – just the ones that follow the traditional real estate marketing model of ingratiating yourself with your clients. It’s an old realtor ploy popularized in the realtors’ bible: How To List & Sell Real Estate In The 21st Century. On page page 53 the author tells the story about how she learned about the success of Tommy Hopkins in Simi Valley a few weeks after she started in real estate: “For Halloween, he rents a truck and loads it up with pumpkins. Then he puts on a ghost costume and drives around his neighborhood giving away pumpkins.” She includes this strategy again under her “Full Year Farming Almanac” on page 93 under October SUPER-promotion.

Uhhhh…I refuse to go around in a ghost costume – even at Halloween. I’d rather discount my commission and give rebates to buyers.

I’ve written before about the deplorable photographs that some agents use on their listings but these photos of a short sale loft deserve a prize. I’ve seen people joke about realtors shooting photos with their cell phones on some of the real estate blogs but I never thought that really happened. Apparently so:

This shot of the living room shows you what the room will look like after consuming the Skyy Vodka shown in the kitchen photo.

The agent liked this shot of the kitchen so much that he put it on the MLS twice. The staging is priceless, with the towel wrapped around the refrigerator door, the garbage can in the corner, and the dishwashing soap in the kitchen sink. These are nice touches because they show that the kitchen is barely large enough to fit the garbage can and people can see that the sink is to be used for washing dishes. The Skyy vodka is to the left of the refrigerator.

This photo highlights the natural light available at night.

In general, short sales have the worst photos. Who knows how the banks come up with the agents to handle these and I can assure you that the bureaucracy of a bank would make it near impossible for a capable realtor to take business from these amateurs. Is it any wonder that the banks are losing their asses on these properties and need the taxpayers to bail them out?