The purchase or sale of a home, or an investment property, is not only one of the most important financial events in peoples' lives, but one of the most complex transactions as well. As a result, people generally seek the help of real estate agents, brokers, and appraisers when buying or selling real estate.
Real estate agents and brokers have a thorough knowledge of the housing market in their community. They know which neighborhoods will best fit their clients' needs and budgets. They are familiar with local zoning and tax laws, and know where to obtain financing. Agents and brokers also act as a medium for price negotiations between buyer and seller.
Brokers are independent business people who, for a fee, sell real estate owned by others and rent and manage properties. In closing sales, brokers often provide buyers with information on loans to finance their purchase. They also arrange for title searches and for meetings between buyers and sellers when details of the transactions are agreed upon and the new owners take possession. A broker's knowledge, resourcefulness, and creativity in arranging financing that is most favorable to the prospective buyer often mean the difference between success and failure in closing a sale. In some cases, agents assume the responsibilities in closing sales, but, in many areas, this is done by lawyers or lenders. Brokers also manage their own offices, advertise properties, and handle other business matters. Some combine other types of work, such as the sale of insurance or the practice of law, with their real estate business.
Real estate agents generally are independent sales workers who provide their services to a licensed broker on a contract basis. In return, the broker pays the agent a portion of the commission earned from property sold through the firm by the agent. Today, relatively few agents receive salaries as employees of a broker or realty firm. Instead, most derive their income solely from commissions.
Before showing properties to potential buyers, the broker or agent has an initial meeting with them to get a feeling for the type of home they would like and can afford. Then, they take them to see a number of homes that are likely to meet their needs and income. Because buying real estate is such an important part of the average person's life, agents may have to meet several times with a prospective buyer to discuss properties. In answering questions, agents emphasize those selling points that are likely to be most important to the buyer. To a young family looking at a house, for example, they may point out the convenient floor plan and the fact that quality schools and shopping centers are close by. To a potential investor seeking the tax advantages of owning a rental property, they may point out the proximity to the city and the ease of finding a renter. If bargaining over price becomes necessary, agents must carefully follow the seller's instructions and may have to present counteroffers in order to get the best possible price.
Once the contract has been signed by both parties, the real estate broker or agent must see to it that all special terms of the contract are met before the closing date. For example, if the seller has agreed to a home inspection or a termite and radon inspection, the agent must make sure that this is done. Also, if the seller has agreed to any repairs, the broker or agent must see to it that they have been made, otherwise the sale cannot be completed. Increasingly, brokers and agents must handle environmental problems or make sure the property they are selling meets environmental regulations. For example, they may be responsible for dealing with problems such as lead paint on the walls. While many other details are handled by loan officers, attorneys, or other persons, the agent must check to make sure that they are completed.
There is more to agents' and brokers' jobs, however, than just making a sale. Because they must have properties to sell, they spend a significant amount of time obtaining listings (owner agreements to place properties for sale with the firm). They spend much time on the telephone exploring leads gathered from various sources, including personal contacts. When listing property for sale, agents and brokers make comparisons with similar properties that have been sold recently to determine its fair market value.
Most real estate agents and brokers sell residential property. A few, usually in large firms or specialized small firms, sell commercial, industrial, agricultural, or other types of real estate. Each specialty requires knowledge of that particular type of property and clientele. Selling or leasing business property, for example, requires an understanding of leasing practices, business trends, and location needs. Agents who sell or lease industrial properties must know about transportation, utilities, and labor supply. To sell residential properties, the agent must know the location of schools, religious institutions, shopping facilities, and public transportation, and be familiar with tax rates and insurance coverage. Agents and brokers increasingly use computers to generate lists of properties for sale, their location and description, and to identify available sources of financing.
Real estate transactions involve substantial financial commitments, so parties to the transactions usually seek the advice of real estate appraisers, objective experts who do not have a vested interest in the property. An appraisal is an unbiased estimate of the quality, value, and best use of a specific property. Appraisals may be used by prospective sellers to set a competitive price, by a lending institution to estimate the market value of a property as a condition for a mortgage loan, or by local governments to determine the assessed value of a property for tax purposes. Many real estate appraisers are independent fee appraisers or work for real estate appraisal firms while others are employees of banks, savings and loan associations, mortgage companies, and multiservice real estate companies.
During an inspection, real estate appraisers evaluate the quality of the construction, the overall condition of the property, and its functional design. They gather information on properties by taking measurements, interviewing persons familiar with the properties' history, and searching public records of sales, leases, assessments, and other transactions. They then estimate the present cost of reproducing any structures on the properties and how much the value of structures may have depreciated over time. Taking into consideration the location of the properties, current market conditions, and real estate trends or impending changes that could influence the future value of the properties, appraisers arrive at estimates of their value. Depending on the purpose of the appraisal, they may estimate the market value of the property, the insurable value, the investment value, or other kinds of value. Appraisers must prepare formal written reports of their findings that meet the standards of the Appraisal Foundation.
Real estate appraisers often specialize in certain types of properties. Most appraise only homes, but others specialize in appraising apartment or office buildings, shopping centers, or a variety of other types of commercial, industrial, or agricultural properties.
Most real estate agents sell residential property.
Although real estate agents, brokers, and appraisers generally work in offices, much of their time is spent outside the office showing properties to customers, analyzing properties for sale, meeting with prospective clients, researching the state of the market, inspecting properties for appraisal, and performing a wide range of other duties. Brokers provide office space, but agents generally furnish their own automobiles.
Agents, brokers, and appraisers often work more than a standard 40-hour week; 4 of every 10 worked 50 hours or more a week in 1992. They often work evenings and weekends to suit the convenience of their clients.
Real estate agents, brokers, and appraisers held about 397,000 jobs in 1992. Many worked part time, combining their real estate activities with other careers. Most were self-employed, working on a commission basis.
Most real estate and appraisal firms are relatively small; indeed, some are a one-person business. Some large real estate firms have several hundred real estate agents operating out of many branch offices. Many brokers have franchise agreements with national or regional real estate organizations. Under this type of arrangement, similar to many fast-food restaurant operations, the broker pays a fee in exchange for the privilege of using the more widely known name of the parent organization. Although franchised brokers often receive help in training salespeople and in running their offices, they bear the ultimate responsibility for the success or failure of the firm.
Real estate is sold and appraised in all areas, but employment is concentrated in large urban areas and in smaller but rapidly growing communities.
Real estate agents and brokers must be licensed in every State and in the District of Columbia. All States require prospective agents to be a high school graduate, be at least 18 years old, and pass a written test. The examination more comprehensive for brokers than for agents includes questions on basic real estate transactions and on laws affecting the sale of property. Most States require candidates for the general sales license to complete at least 30 hours of classroom instruction and those seeking the broker's license to complete 90 hours of formal training in addition to a specified amount of experience in selling real estate (generally 1 to 3 years). Some States waive the experience requirements for the broker's license for applicants who have a bachelor's degree in real estate. A small but increasing number of States require that agents have 60 hours of college credit roughly the equivalent of an associate degree. State licenses generally must be renewed every year or two, usually without reexamination. Many States, however, require continuing education for license renewal.
Federal law requires appraisers of most types of real estate (all property being financed by a Federally regulated lender) to be State certified. In some States, appraisers who are not involved with Federally regulated institutions do not have to be certified. State certification requirements for appraisers must meet Federal standards, but States are free to set more stringent requirements. Formal courses, appraisal experience, and a satisfactory score on an examination are needed to be certified, but college education may be substituted for a portion of the experience requirement. Requirements for licensure vary by State but are somewhat less stringent than for certification.
Individuals enter real estate appraisal from a variety of backgrounds. Traditionally, persons enter from real estate sales, management, and finance positions. However, a growing number of people are entering appraiser jobs directly from college. College courses in real estate, finance and business administration, economics, and English are helpful. Many junior and community colleges offer 2-year degrees in real estate or appraisal. Trainee appraisers usually assist experienced appraisers until they become licensed.
Persons who take real estate agent, broker, and appraiser positions are older, on average, than entrants to most other occupations. Many homemakers and retired persons are attracted to real estate sales by the flexible and part-time work schedules characteristic of this field and may enter, leave, and later reenter the occupation, depending on the strength of the real estate market, family responsibilities, or other personal circumstances. In addition to those who are entering or reentering the labor force, some transfer into real estate jobs from a wide range of occupations, including clerical and other sales jobs.
As real estate transactions have become more complex, involving complicated legal requirements, many firms have turned to college graduates to fill positions. A large number of agents, brokers, and appraisers have some college training, and the number of college graduates selling real estate has risen substantially in recent years. However, personality traits are fully as important as academic background. Brokers look for applicants who possess a pleasant personality, honesty, and a neat appearance. Maturity, tact, and enthusiasm for the job are required in order to motivate prospective customers in this keenly competitive field. Agents also should be well organized and detail oriented as well as have a good memory for names and faces and business details, such as taxes, zoning regulations, and local land-use laws.
Persons interested in beginning jobs as real estate agents often apply in their own communities, where their knowledge of local neighborhoods is an advantage. The beginner usually learns the practical aspects of the job, including the use of computers to locate or list available properties or identify sources of financing, under the direction of an experienced agent.
Many firms offer formal training programs for both beginners and experienced agents. Larger firms generally offer more extensive programs than smaller firms. Over 1,000 universities, colleges, and junior colleges offer courses in real estate. At some, a student can earn an associate or bachelor's degree with a major in real estate; several offer advanced degrees. Many local real estate boards that are members of the National Association of Realtors sponsor courses covering the fundamentals and legal aspects of the field. Advanced courses in appraisal, mortgage financing, property development and management, and other subjects also are available through various National Association of Realtor affiliates.
Many real estate appraisers voluntarily earn professional designations that represent formal recognition of their professional competence and achievements. A number of appraiser organizations have programs that, through a combination of experience, professional education, and examinations, lead to the award of such designations. These professional designations are desirable because requirements for them are more stringent than State standards. Among the more common are various designations awarded by the Appraisal Institute and the American Society of Appraisers.
Advancement opportunities for agents often take the form of higher commission rates and more and bigger sales, both of which increase compensation. This occurs as agents gain knowledge and expertise and become more efficient in closing a greater number of transactions. Experienced agents can advance in many large firms to sales or general manager. Persons who have received their broker's license may open their own offices. Others with experience and training in estimating property value may become real estate appraisers, and people familiar with operating and maintaining rental properties may become property or real estate managers. (For detailed information on property and real estate managers, see the statement elsewhere in the Handbook). Agents, brokers, and appraisers who gain general experience in real estate and a thorough knowledge of business conditions and property values in their localities may enter mortgage financing or real estate investment counseling.
Employment of real estate agents, brokers, and appraisers is expected to grow about as fast as the average for all occupations through the year 2005 as a result of the growing volume of sales of residential and commercial properties. Despite this rising demand, however, the large majority of job openings will be due to replacement needs. Each year, tens of thousands of jobs will become available as workers tranfer to other occupations or leave the labor force. Because turnover is high, real estate sales positions should continue to be relatively easy to obtain. Not everyone is successful in this highly competitive field; many beginners become discouraged by their inability to get listings and to close a sufficient number of sales. Lacking financial sustenance and motivation, they subsequently leave the occupation. Well-trained, ambitious people who enjoy selling should have the best chance for success.
Employment growth in this field will stem primarily from increased demand for home purchases and rental units. Shifts in the age distribution of the population over the next decade or so will result in a large number of persons in the prime working ages (25-54 years old) with careers and family responsibilities. This is the most geographically mobile group in our society and the one that traditionally makes most of the home purchases. As their incomes rise, they also may be expected to invest in additional real estate.
Increasing use of technology and electronic information may increase the productivity of realtors and brokers. More and more real estate companies are equipped with computers, faxes, modems, and databases. Some real estate companies are even using computer generated images to show houses to customers without even leaving the office. These devices enable one realtor to serve a greater number of customers. Use of this technology may eliminate some of the more marginal realtors such as those practicing real estate part time or between jobs. These workers will not be able to compete as easily with full-time realtors who have invested in this technology.
Employment of real estate agents, brokers, and appraisers is sensitive to swings in the economy. During periods of declining economic activity and tight credit, the volume of sales and the resulting demand for sales workers may decline. During these periods, the earnings of agents, brokers, and appraisers decline, and many work fewer hours or leave the occupation.
Commissions on sales are the main source of earnings of real estate agents and brokers few receive a salary. The rate of commission varies according to the type of property and its value; the percentage paid on the sale of farm and commercial properties or unimproved land usually is higher than that paid for selling a home.
Commissions may be divided among several agents and brokers. The broker and the agent in the firm that obtained the listing generally share their part of the commission when the property is sold; the broker and the agent in the firm that made the sale also generally share their part of the commission. Although an agent's share varies greatly from one firm to another, often it is about half of the total amount received by the firm. The agent who both lists and sells the property maximizes his or her commission.
Real estate agents, brokers, and appraisers who usually worked full time had median weekly earnings of $507 in 1992. The middle 50 percent earned between $323 and $802. The top 10 percent earned more than $1,247 and the lowest 10 percent earned less than $223.
Income usually increases as an agent gains experience, but individual ability, economic conditions, and the type and location of the property also affect earnings. Sales workers who are active in community organizations and local real estate boards can broaden their contacts and increase their earnings. A beginner's earnings often are irregular because a few weeks or even months may go by without a sale. Although some brokers allow an agent a drawing account against future earnings, this practice is not usual with new employees. The beginner, therefore, should have enough money to live on for about 6 months or until commissions increase.
Selling expensive items such as homes requires maturity, tact, and a sense of responsibility. Other sales workers who find these character traits important in their work include automotive sales workers, securities and financial services sales workers, insurance agents and brokers, yacht brokers, travel agents, and manufacturers' representatives. Other appraisers specialize in performing many types of appraisals besides real estate, including aircraft, antiques and fine arts, business valuations, and yachts.
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Reprinted with Permission of U. S. Department of Labor