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February 2011 Real Estate Insights: The More You Learn, the More You Earn?

What makes one a successful real estate agent? Other than personality traits, which are often difficult to quantify, academic research has tried to measure the impact of a number of variables on success and earnings of real estate agents, including education, years of experience in the real estate business, demographics, and firm association. These studies most often showed earnings are positively affected by education and experience. Earning a college degree typically boosts one’s income by 30 percent, while graduate education, especially in business can add even more to one’s earnings.1,2,3,4 Skilled people, one study showed,5 who are people with more education and experience, are found to work more efficiently. In other words, they work fewer hours but are able to more productively convert showings and tours to transactions.

The 2010 NAR Member Profile suggests the same education-income trends among REALTORS®. Let’s look at the basic demographics as shown in the Profile and how age, education and years of experience in the real estate business are related.

More than half of REALTORS® are between age 40 and 59, one third are 60 years or older, and one eighth are 39 years old or younger. Also, most REALTORS® have at least some college education. The largest share, almost one third of members, has some college education, while a similar share has a bachelor’s degree. Less than one percent of NAR members holds a doctoral degree or has no formal education beyond high school. Those with some high school education are mostly age 60 or older and about a third are between age 40 and 59. The shares of REALTORS® having done some graduate work are about evenly distributed among the three age groups. REALTORS® with Master’s/MBA/law or doctoral degrees are more likely to be 50 years of age or older, while members with a bachelor’s degree or less are more likely to be between age 40 and 59.

The Profile also presents information on tenure in the real estate business. Seven out of 10 REALTORS® have been in the industry for six years or more. Those who have been in the industry the longest – 16 or more years – are most likely to have either some high school or have done some graduate work.

More interestingly, however, the Member Profile shows that REALTORS® with a college education earn higher income. It indicates that across all levels of experience, NAR members with at least a bachelor’s degree earn higher gross personal income than those without formal college education. For those REALTORS® with 10 years of experience in real estate or less, having a bachelor’s degree increases their income by at least 18 percent compared with those with the same tenure in the business but without a degree. For members who have been in the industry for 16 to 25 years, the difference jumps to 23 percent. The difference in income is greatest for those who have been in the industry the longest. While the typical agent without a college education earns $47,600, those with a college degree earn 44 percent more or $68,500. Put differently, almost half of REALTORS®, or 48 percent, who hold a bachelor’s degree or higher earn higher income than those without a college degree. Fifty-nine percent of those earning $150,000 or more have at least a bachelor’s degree, while 44 percent of those earning less than $50,000 have a degree.

The Profile further shows that REALTORS® earning higher personal income are also more committed to their real estate occupation in a number of ways. Members with higher gross personal income were more likely to have gained additional real estate specific education, such as an NAR professional designation or certification. For example, while 33 percent of those earning $25,000-$49,999 had a designation, the share jumped to 53 percent for those earning $150,000 or more. Among the members surveyed, one-third had at least one NAR professional designation, while one fourth had a certification. A larger share of those REALTORS® with some graduate work or a Master’s/MBA/law degree had a designation compared to other NAR members. The share of members with a certification was generally consistent – at one out of four – although those with some high school held certifications less frequently.

In addition, the higher the income, the more likely it is that real estate is an agent’s only occupation. The Member Profile shows that 94 percent of those earning $150,000 say real estate is their only occupation, while only 53 percent of those earning less than $10,000 say the same. Also, the higher income the more likely real estate is the primary source of income for the household.

Finally, when looking at business activity, another interesting parallel emerges. REALTORS® who have completed higher levels of education also have higher median volume of real estate sales. Those with some high school had a median sales volume of $1.0 million, while those with a bachelor’s degree or higher had a median sales volume of $1.3 million. Also interesting is the correlation between those REALTORS® with doctorate degrees and their sales activity. While those with doctorates generally report fewer transactions (four) than do REALTORS® in the other education categories (seven),those members with Ph.D.’s have generally higher sales volume:, $1.5 million. They also tend to work fewer hours per week (30 hours). This translates in higher productivity, i.e., higher per hour wage. This information is consistent with the study by Benjamin et al. which found similar results using regression analyses.

In summary, while it is still difficult to measure how much an agent’s success depends on his/her ambition and effort, the 2010 NAR Member Profile confirms previous studies which show that higher education leads to higher income for real estate agents and agents earning higher incomes are more committed to the real estate industry. Members with a college education earn anywhere between 14 and 44 percent more than those without a college education but with similar work experience. Gaining additional knowledge enables agents to become more comfortable in their work environment and enhances their productivity, by giving them computer, marketing or management skills, which are all critical in today’s fast-moving and information-driven society.

Want more information from the Member Profile?

NAR members can download a PDF of the Member Profile at no cost. Simply visit http://www.realtor.org/research. Nonmembers can purchase a copy of the report by visiting the same site, or calling 1-800-874-6500.

References

1Glenn E. Crellin & James R. Frew & G. Donald Jud. 1988. “The Earnings of REALTORS®: Some Empirical Evidence,” Journal of Real Estate Research, American Real Estate Society, vol. 3(2), pages 69-78.
2Michael Glower & Patric H. Hendershott. 1988. “The Determinants of REALTOR® Income,” Journal of Real Estate Research, American Real Estate Society, vol. 3(2), pages 53-68.
3Jud, G. D., D. T. Winkler and G. S. Sirmans. 2002. The Impact of Information Technology on Real Estate Licensee Income, Journal of Real Estate Practice and Education, 5:1, 1–16.
4Follain, J. R., T. Lutes and D. S. Meier. 1987. Why Do Some Real Estate Salespeople Earn More Than Others?, Journal of Real Estate Research, 2:3, 73–81.
5J. Benjamin & P. Chinloy & G. Jud & D. Winkler. 2007. “Do Some People Work Harder than Others? Evidence from Real Estate Brokerage,” The Journal of Real Estate Finance and Economics, Springer, vol. 35(1), pages 95-110, July.

Selma Hepp, Research Economist

Selma Hepp, Research Economist, regularly monitors and writes columns on latest academic research in housing and urban economics, foreclosures, international housing markets, and demographic trends. Selma also reports on federal and state metropolitan planning policy impacts.

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