There Are Way Too Many Real Estate Agents

This article originally appeared on Business Insider.

Bret Weinstein, a longtime real-estate broker in Denver, wants to love his industry. At its best, the business helps people find the homes of their dreams or secure financial freedom. But lately, he’s been having trouble squaring that passion with a growing problem: a glut of underqualified real-estate agents.

“It really does need an overhaul,” Weinstein told me. “The general public deserves so much better than what the majority of real-estate agents provide.”

The issue, Weinstein said, is that it’s way too easy to become an agent. In most states, getting a license to help people buy or sell a home requires only a few hundred dollars, several weeks of coursework, and a passing grade on a multiple-choice test. The low barrier to entry and fat commission checks lure many to the industry, especially when home prices rise. In the decade-plus since the housing market started to rebound from its financial-crisis lows, the ranks of agents have swelled with part-timers and career switchers looking to capitalize on the boom. At the end of June, there were roughly 1.6 million registered Realtors in the US — or about 2 ½ Realtors for every available home on the market.

This surplus of agents is bad for both the industry and regular people in the housing market, a report from the Consumer Federation of America said last month. The low barrier to entry puts buyers and sellers at risk of ending up with dubious advice on one of the biggest transactions of their lives, while the capable agents are forced to spend inordinate amounts of time and money trying to stand out from the pack, the report said. They also waste hours dealing with incompetent colleagues as they try to get a sale across the finish line. When too many agents are fighting over too few deals, they’re incentivized to keep commission rates high so they can continue to eke out a living — to the detriment of consumers.

Not everyone in the business agrees with this assessment. The National Association of Realtors, the industry’s largest trade association and the entity responsible for setting the professional standards for many agents, has resisted calls to strengthen the requirements for licensure. It says that easy entry is a feature to be celebrated, not a bug — a prime example of free-market competition at work.

It’s just terrible to have such a low bar.

Both the NAR and many brokerages have incentives to keep the number of agents high, since they rely on the dues from agents to keep their businesses going. The NAR has seen its head count grow by nearly 200,000 since the start of the pandemic. But the past few years have also exposed the drawbacks of the setup: Customers grumble over high commissions for subpar service, while an increase in the number of fly-by-night agents has made it harder for those who are dedicated to the profession.

Eradicating these issues isn’t feasible, but there are incremental steps that could improve things. States could raise the educational requirements for licensing, tighten the standards for passing the test, and require hands-on training, rather than leaving that aspect up to individual brokerages. Fewer agents may join the industry as a result, but ensuring that every person who buys or sells a home gets qualified, serious help to navigate the complex process could be worth it.

A threat to the industry

The vast majority of real-estate agents are independent contractors who rely on commissions. The flexibility of the job, promise of huge payouts, and relatively few requirements for getting started proved to be big draws earlier in the pandemic.

It’s never been all that difficult to become a real-estate agent. In most states, the required education can be completed in a matter of weeks, and self-paced online courses can cost less than $100. Real-estate appraisers, Weinstein pointed out, are required to complete “substantially more training than a real-estate agent” to value a home, even though they both play key roles in the sales process. In Texas, for instance, appraisers need 150 hours of education and then 1,000 hours of supervised experience before taking a test and earning their license. To become a real-estate agent, you need 180 classroom hours but no other experience. Other states have similar disparities — Massachusetts and Michigan require just 40 hours of education, while barbers in those states must complete 1,000 hours or more. In Pennsylvania, nail technicians must finish 200 hours of education, compared with the 75 hours required of agents.

“We’re the ones who are negotiating the buy, sell, all of these pieces,” Weinstein said. “It’s just terrible to have such a low bar.”

After completing this training, many, but not all, agents choose to join the National Association of Realtors, which allows them to use the designation of “Realtor” and requires them to abide by a code of ethics. To work as an agent, they’re also…