Why people enter the real estate sales business

Real Estate Issues, Fall 2001 by Webb, Jame R, Seiler, Micheal J

INTRODUCTION

Turnover in the real estate sales business is reputed to be one of the highest in all job categories. Estimates from interviews performed with real estate brokers range from 50 percent within two years to 98 percent within five years.

While no studies have attempted to accurately estimate the turnover of real estate sales people, all agree that it is very high. The purpose of this study is to ascertain why people enter real estate sales. Since so many people exit in a relatively short period, it would seem that their expectations upon entering are not met and are, perhaps, not realistic. If this is true and expectations upon entering can be altered, then the high turnover rate can possibly be reduced.

LITERATURE REVIEW

House(1977) suggests that high turnover in real estate sales can be attributed, in part, to the non-routine, problematic, and irregular work hours involved. He argues that real estate agents must be ready to see prospective clients at almost any time. This, coupled with the commission-based pay structure, which makes income irregular and uncertain, leads to a low success rate for new agents.

Wotruba(1991) contributes high early failure rates to the "sink or swim" philosophy followed by most real estate firms. The marginal cost of providing desk space and secretarial service for a new salesperson is low and so too is the time spent screening and training new agents. If the new agent becomes successfully established, the company profits. If the agent fails, the firm can easily and inexpensively hire a new recruit to replace him/her. Moore, Eckrich, and Carlson(1986) suggest that early failure rates could be greatly decreased by implementing basic screening procedures. They studied the skills and characteristics needed to be successful in sales and produce a hierarchy of importance among 82 sales competencies.

Since failure rates are so high, why then do so many individuals seek to become real estate sales agents? Barth(1964) explains that many new real estate sales people are primarily entrepreneurs that are willing to work hard for a living, but lack formal education and financial capital, which are necessary to be successful in other careers. Other explanations for real estate sales entry include ease of entry, low screening procedures, and the independent nature of the work [House(1977)].

RESEARCH DESIGN

The research design was a questionnaire. Fourteen questions, (13 closed-ended and one open-ended) were mailed to 1,500 randomly selected people who recently entered the real estate sales business in the state of Ohio. (Entering real estate sales people were defined as those who recently received sales licenses in the state of Ohio.)

The surveys were accompanied by a self-addressed return envelop and a cover letter emphasizing the importance of the study in an attempt to raise the response rate. Appendix A contains a copy of the questionnaire used.

A second group, consisting of 1500 individuals who recently exited the real estate sales business, was also mailed questionnaires. The attempt was to learn, ex post, of the relationship between expectations when entering real estate sales and the realization once exiting. Unfortunately, a parsimonious response rate of only 1.1 percent (17/1500) rendered the comparisons unattainable.

RESULTS

Entering Real Estate Sales

Of the 1500 surveyed, 418 people returned useable questionnaires. This is a response rate of 27.9 percent. Exhibits I - 6 show the geographical location, affiliation, gender, age, education level, and household income, respectively, of the respondents.

As would be expected, the larger response rates are from the population centers and the highest response rate is from the source of the survey (northeast Ohio). Southeast Ohio is sparsely populated, when compared to the other parts of Ohio, thus contributing to its low frequency of responses. (See Exhibit 1.)

Almost all of the respondents (395/418) were affiliated with the REALTOR association (95.0 percent). The other 5 percent were Realtists and nonaffiliated people. The survey was generic and sent to randomly selected real estate sales licensees, so the high response rate from REALTORS was not expected. In Ohio only about 65 percent of the real estate sales licensees are affiliated with the REALTOR group. Perhaps being part of the REALTOR trade group influenced people to respond, since the cover letter used made reference to the National Association of REALTORS. (See Exhibit 2.)

The study respondents entering real estate sales were almost evenly divided between male (47.1 percent) and female (52.9 percent). In addition, a third of the respondents were 26-35 years old and over 70 percent were 45 years old or younger (Exhibits 3 & 4). Only two of the respondents did not have a high school diploma, while 29 (6.9 percent) had completed an advanced college degree. Nearly 40 percent of the respondents had at least a bachelor's degree. (See Exhibit 5.)

Exhibit 6 shows household income from all sources, not just real estate sales. Many times real estate sales people enter on a part-time basis. As expected, the frequency observed in each household income category increased up to the $30-40,000 per year range, then decreased thereafter.