By Getty Goh (guest contributor)
I was recently invited by the Institute of Estate Agents (IEA) to be one of the panel judges for the Realtor of the Year award. Along with my fellow judges, I was given the task of interviewing and identifying a suitable candidate who embodied the values of a model realtor. Apart from being top performers (in terms of commissions earned), they also had to be professional in conduct and provide warm and personable service.
From the judging session, one thing I noted was how much these agents earned. As all of the shortlisted candidates were top achievers in their agencies, almost all of them earned commission amounting to more than several hundred thousand dollars. Seeing this, one of my fellow judges even commented in jest that he should consider a career switch.
This got me thinking and I started to wonder – how much does a property agent really earn? We often hear or read about certain agents making million dollar commissions, but is that the exception or the norm? That piqued my curiosity.
Working out the average commission
Based on the caveats lodged with the Singapore Land Authority (SLA) in 2011, the number of private residential, commercial, industrial and resale HDB transactions were about (1) 32,903, (2) 1,411, (3) 2,241 and (4) 22,683 respectively. The total value transacted for residential, commercial, industrial and resale HDB amounted to about (1) $50,448,013,709, (2) $4,087,529,191, (3) $4,528,320,789 and (4) $9,695,739,615 respectively. Based on these figures, the total amount of property transactions for 2011 worked out to be about $68.76billion.
If we work on the assumption that the commission for each HDB resale transaction is about 2% and about 1% for a private residential, commercial and industrial transaction, the total commission generated by the real estate industry would amount to about $785million.
Based on this figure, what is the average commission each agent can expect to make? According to a Channel News Asia report, dated 30 Jan 2012, the number of agents in 2011 was 34,300. Assuming everyone gets an equal share, the average commission each agent would get is about $22,873 (or about $1,906 per month).
I admit that simply taking the average may not be very reflective of the actual situation and a more accurate form of approximation, such as the Pareto Distribution, should be applied.
Applying the 80-20 Rule to figure out what the top agents make
Vilfredo Pareto was an Italian economist who lived in the early 1900s. Through his research, he discovered that 80% of wealth was held by the top 20% of the population. Over time, the 80-20 distribution was found to be highly accurate in approximating income distribution and it became an accepted economic principle, hence the “80-20” rule.
If we were to apply Pareto’s “80-20” rule to how the commissions are distributed, we find that the top 20% of property agents would have made an average commission of about $91,493 annually (about $7,624 per month). In comparison, the majority would make an average of $5718 annually (about $477 per month)
Based on MOM’s website, the average employee made about $4,334 per month. Putting things into perspective, we can conclude that those who do well (i.e. within the top 20%) do make a fairly comfortable living. On the other hand, those who are not doing as well would just be scraping by.
Million-dollar agents are more the exception than the rule
More importantly, this analysis also suggests that agents who make million-dollar commissions annually are likely to be exceptions. Even if they were able to do so for one year, it would be very difficult for them to sustain their performance, as there is simply not enough commission to go around. For the figures to add up, in order for all practicing realtors to make commissions of $1million or more every year, there can be no more than 785 agents, which is a small fraction of the total number of registered agents.
We often hear stories of top property agents making a good income and walk away with the impression that there is easy money to be made in the real estate industry. This analysis shows that for every million-dollar property agent, there are many others who do not make it and eventually fall out of the game. Hence, it does not come as a surprise that the real estate industry has such a high turnover rate. Perhaps this is why about 3,700 (more than 10% of the total agent population) decided not to renew their license and we are down to 30,600 agents in 2012.
Like any job, those who put in time and effort will do well and rise to the top. The ethics of hard work apply to the real estate market as well. For those who are thinking of making a career switch to become a property agent, you must be prepared to invest the effort to do well. Otherwise you may just add to the statistic of agents who eventually drop out of the realtor game.
By guest contributor Getty Goh, Director of Ascendant Assets, a real estate research and investment consultancy firm. Posted courtesy of www.Propwise.sg, a Singapore property blog dedicated to helping you understand the real estate market and make better decisions. Click here to get your free Property Beginner’s and Buyer’s Guide.