Why do not all real estate agents sell houses in expensive areas?

Question

Why do not all real estate agents sell houses in more expensive areas like the Bay Area, Los Angeles, and New York? Why do real estate agents choose to sell houses in lower priced real estate areas when they can be getting huge commissions on million dollar homes that have extremely high demand?

Russell Brazil · Answer

Most agents sell where they live. Being a real estate agent largely requires 2 things.  Local expertise knowledge and a large network of people. So it is a profession that does not lend itself to moving like other professions.

Jay Hinrichs · Answer

@Mark Pedroza  you missed Alviso !!!

@Chris Mason  that was me the little rural agent in N. CA who dominated my market..

lots and lots of smaller transactions but they all added up. !

Russell Brazil · Answer

Because for most people it would take them roughly a decade to gain enough knowledge of the market and a large enough network to be successful.  You cant just move and jump in and be successful.

James Wise · Answer

As @Russell Brazil stated not having long term roots plays a major role in why one moving to a more expensive neighborhood might not be a sound business plan. Other reasons might be that one doesn't want to leave friends, family & everything they know to simply chase a paycheck.

On top of that there is that little bugger called supply & demand. If you end up with an abundance of agents in a couple markets the deal flow will be very thing. I believe those markets you mentioned already experience that. How many homes does the average agent sell in LA per year? I know Josh Flagg (Guy from Million Dollar Listing LA) only sells like 10 per year. (& he's a network tv start) myself I personally did 132 last year while assisting my team in doing another 306.

Chris Mason · Answer

Turn over a rock in San Jose where you live, and 5 agents will extend their hand with a business card in it. Most of them do not produce much, even though they are putting in 65 hours per week. When an agent in San Jose confidently says "based on my experience..." they are leaving out the part where that "experience" is 2 or 3 transactions a year, $3m in volume (an SFR and 2 condos).

Look long and hard in a small town in a rural California area (nothing to be found under the rocks), and you might find one or two agents that are good. And they have their hands on some crazy percentage of the transactions in that small town, in one way or another. Perhaps three dozen transactions per year. $250k * 36 = $9m/yr in volume. Same 65 hours per week, and it's actual real estate stuff like negotiating and viewing homes, rather than stuff like cold calling for clients or lying under rocks in ambush.

Joel Owens · Answer

Well it's all about what life you want.

I am not about a ton of volume but then my clients buy commercial properties in the millions to tens of millions of dollars. I am the brokerage so I keep almost all of the commission minus business expenses.

There are 2 typical broker business models. Those that like a relaxed life and keep it cozy and small but highly efficient and profitable and then those that go big and make money off of scale. The big firms do good in an upturn and peak market but the tend to get hammered in a down turn. In growth phase almost all of their profit goes back into growing the business as they feed the beast that is sucking cash for them to scale.

I have been in the business going on 15 years and have seen a lot in various cycles. The carrying costs for a volume company can be large when sales cycle goes down in a down turn yet the carrying costs increase as production falls. The companies hang on too long before adjusting and then they get into big trouble. I saw this last time with REO brokerages.

You have to remember with high end homes comes VERY HIGH marketing costs for a residential brokerage. They could go through tens of thousands of dollars marketing a property and it never sells. So a listing broker could have 5 listings and spend 20k per listing for 100k in marketing costs. 2 could sell for 200k in commission minus 100k is 100k commission and then that listing broker is on a split with their company they put their license with. They also have to keep up an appearance etc.

I love commercial real estate because it is not all this smoke and mirrors and is about the relationship and the numbers with a property to buy it or not.

Those residential top producers do not show you all the losses they are taking on with high marketing costs. Some other brokers I know give a basic listing package for high end stuff. If the seller wants a ton of marketing the seller pays for it and if allowed in that state the amount is credited back off of the commission at closing. This forces the seller to have skin in the game if they decide to just test the market or spend all the brokers marketing money to then try and pull off the market early.

Jason Lee · Answer

There are roughly 25,000-30,000 agents in NYC and roughly 10,000-12,000 sales per year. You think someone can move here, quickly establish expertise in the local market and build a network of buyers and sellers, and then 10x their income?

Matthew Paul · Answer

Base hits all month long or a home run every 3 or 4 months . The big money is made in nickles and dimes

Mark Pedroza · Answer

Alviso!!! @Jay Hinrichs

I forgot about Sunnyvale as well. And all of those EIchler homes which are now high end..

Karen Margrave · Answer

Bread and Butter and the icingn on the cake. Way back in the stoneage when I started out as an office manager in a real estate office, we had 30 agents, and were the largest office in Redding, CA at the time. 25 agents were residential, selling and listing homes in the 100k range (which were nice houses) There were 5 agents that focused on commerical listings and sales. When those 5 agents completed a deal they were paid large commissions. However; those commissions took far more work to earn than the commissions the residential agents were doing, and in the long run, the residential agents made more money, and more consistently.

Agents do best working in the market they're comfortable in and can sell. There's pros and cons to both high and lower end homes. Of course, where an agent lives, works, etc. makes all the difference in the competition they have in their markets too.

Why do not all real estate agents sell houses in expensive areas?

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