BILL CHERRY'S GREATEST DALLAS PARK CITIES REAL ESTATE BLOG: The Law of Diminishing Returns Is Against Realtors.

The Law of Diminishing Returns Is Against Realtors.

The Law pf Diminishing Returns is a basic law of economics.  

It says that if one input in the production of a commodity is increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield are smaller.

 

The classic example is of a farmer who has, say, four workers picking cotton on his property.  He figures that if he increases the number to eight, the cotton picking will be completed wice as fast.  Intrigued, after seeing that worked, he doubles the number of workers to sixteen. 

 

But now there are so many workers picking cotton, that they are falling over each other.  Lo and behold, his labor cost has increased whereas the amount of cotton picked by each worker has decreased. The net result is that his cost of labor has increased, whereas his production per worker has decreased.

 

The Law of Diminishing Returns can easily be applied to the number of real estate agents there are in the universe.

 

The number of people who want to sell their homes or buy a different one at any one time, in the main,  has no significance to the number of real estate agents who are in the market looking for clients.

 

But the number of agents, continuing to increase, reduces the productivity of the majority of agents.

 

The NAR’s business objective is to increase the number of agents, without considering whether or not the increase is needed.  That is the same objective as that of local Associations and of most franchise companies.

 

However, the business objective of each licensed agent is to have enough prospects to make what he/she considers an effective living.

 

Note that the NAR, local Association, and that of most franchises' objectives ignores the Law of Diminishing Returns; while the licensed agents’ objective wishes that they would abide by the Law of Diminishing Returns.

Bill Cherry, Realtor
Dallas
214 503-8563

Comment balloon 26 commentsBILL CHERRY • September 27 2017 06:56PM

Comments

This is certainly what is happening in our area.

Posted by Jeanne Gregory, The most important home I sell is YOURS! (RE/MAX Southwest) 10 months ago

Interesting. I think the new agents added might wind up being offset by those huge percentages that don't make it past the first year. And it's still the minority of agents who wind up with the most deals. At least that is what I see here!

Posted by Kat Palmiotti, The House Kat (Grand Lux Realty, 914-419-0270, kat@thehousekat.com) 10 months ago

So true!  You trip and hit 3 Realtors as you're falling down!

Posted by Francine Viola, Realtor, In Tune with your Real Estate Needs (Coldwell Banker Evergreen Olympic Realty, Olympia WA) 10 months ago

So true Bill.  I've stated for years that the barriers to entry to this profession/industry are far too low.  And the reason being is that NAR and local associations derive their existence from our fees.  My idea is that many if not all of us SERIOUS full time professionals would gladly pay higher dues in order to limit the number of Realtors out there.  In addtion, the tests/exams should not be able to be taken time after time until a potential Realtor passess the exam.  No, in my world if you fail the exam you have to take the whole 90 hour course over again AND pass the exam.  This would weed out those who are only interested in this profession as a "side gig". The additional fees would be more than offset by additional transactions for all the serious Realtors.  Great post.  Best wishes to you.

Posted by Jerry Murphy, CRS, SRES, Anthem, Phoenix, and Scottsdale AZ Real Estate (Long Realty West Valley) 10 months ago

Very interesting Bill and it is very true.  I'm with Jerry Murphy, CRS on this it's far too easy to get into the business here in AZ as I'm sure elsewhere. The more the better has been the idea for years  instead of - only the best of the best pass the exam, mentor under an experienced broker for  a year or two. I'm all for upping the education amount to even be able to take the exam and have been for many years.

Posted by Anna Banana Kruchten CRB, CRS 602-380-4886, Arizona's Top Banana! (Phoenix Property Shoppe) 10 months ago

As others have said it's far to easy to get into this business and when the perception is that things are booming then lots of people will pursue getting licensed. NAR makes out in fees but they get those whether someone is making lots of money or almost nothing.

Posted by Jeff Dowler, CRS, The Southern California Relocation Dude - Carlsbad (Solutions Real Estate ) 10 months ago

Bill- what a well thought out post.  And yes, the ease with which people can enter your field is not good for the industry or for those entering it.  Yes, there will be a good  number who will not stay in the profession but is it fair to them or those in it. 

Posted by Kathy Streib, Home Stager - Palm Beach County,FL -561-914-6224 (Room Service Home Staging) 10 months ago

Bill, I think the profession would thin significantly if a) agents at entry into the profession actually had a REALISTIC view of what they were about to enter into (how many think just big checks and easy money?)  b) the bad apples actually got weeded out...but that's a pipe dream too.

Posted by Liz and Bill Spear, RE/MAX Elite Warren County OH (Cincinnati/Dayton) (RE/MAX Elite 513.520.5305 www.LizTour.com) 10 months ago

One final comment, and it's a personal one:  Why do I pay money that I earn to anyone or any company or association that actively recruits my competition? I must be crazy......!

Posted by BILL CHERRY, Broker & Wealth Coach (Bill Cherry, Realtor) 10 months ago

Bill, I think of the law of diminishing returns more in terms of eating ice-cream.

Posted by Brian L. Sirota, Esq., For Solutions: (714) 501-7660 (Bristar Realty (Realtor/Attorney)) 10 months ago

More agents equals more dues money for the NAR heirarchy.    They have no vested interest in whether an agent makes money or not.

Posted by Linda Metallo DiBenardo (Re/max Impact, Lockport, Illinois) 10 months ago

Interesting perspective. I've often felt their are realtors everywhere although I also suspect a lot of them are less than full time

Posted by Paul McFadden, Pest Control, Seattle, WA. (Paratex) 10 months ago

Meaning found here thank you

Posted by Richie Alan Naggar, agent & author (people first...then business Ran Right Realty ) 10 months ago

I've always know this but you have said it very well. Every brokerage in this area has a sign in the window that says they're recruiting. 

And regarding lowering the bar - our association just announced that starting in 2018, all continuing ed classes will eliminate tests. Just take the class and leave.

Posted by Margaret Goss, Chicago's North Shore & Winnetka Real Estate (Baird & Warner Real Estate) 10 months ago

BILL CHERRY ~ so true and so sad on many levels! And then, add to the mix companies like opendoor, purple bricks, and even Zillow and we've really got a mess... Just take a look at what's going on in Beaufort SC, a picture can say a thousand words and it can also let you know what to expect, too

 

Posted by Jon Kolsky, Licensed California Real Estate Broker (Kolsky Realty & Management) 10 months ago

                    

                                                  Thank you Bill. 

Posted by Kathy Streib, Home Stager - Palm Beach County,FL -561-914-6224 (Room Service Home Staging) 10 months ago

Good morning Bill. Licenses provide the state fees. Some brokerages charge to hang your license. None of these give a damn to the active agent side of the law of diminishing returns. Enjoy your day!

Posted by Wayne Martin, Real Estate Broker (Wayne M Martin) 10 months ago

Good morning, BILL CHERRY real estate agents ARE a plentiful group....but that does not influence the business of the well-versed full time and full experienced real estate agent... 

Posted by Barbara Todaro, "Franklin MA Homes" (RE/MAX Executive Realty ) 10 months ago

Good morning Bill. Interesting post and I think it is about time the industry was thinned.

Posted by Sheila Anderson, The Real Estate Whisperer Who Listens 732-715-1133 (Referral Group Incorporated) 10 months ago

I can see why Kathy chose to highlight your post this week...well done!

Posted by Kristin Johnston - REALTOR®, Giving Back With Each Home Sold! (RE/MAX Realty Center ) 10 months ago

Hi, Bill --- this is a very well-written post.  I didn't "see" it in the gold star group but "found" it today in Kathy's weekly post.  A very worthy inclusion for both.  

Posted by Michael Jacobs, Los Angeles Pasadena Area Real Estate 818.516.4393 (Coldwell Banker Residential Brokerage) 10 months ago

I don't care if it's Zillow or purple or HelpU whatever, there is always a market for discounters, Bill. They don't affect the agents who know what they are doing. Plus with newer agents in the business, we experienced agents look so much better by comparison.

If we didn't replenish the forces, the agents who can't make it and quit would thin the population too much. I don't mind competition.

Posted by Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents, Put 40 years of experience to work for you (Lyon Real Estate) 10 months ago

So true! A great post! Very well thought out. Thank you for sharing!

Posted by Corey Martin, Real Estate and Management Solutions (Martin Presence Group) 10 months ago

I feel you made your point clear.

I am confident that no matter the level of proficiency of an agent, that the larger the number of agents in the pool there will be a diminishing return

Posted by John Wiley, Lee County, FL Real Estate GRI, SRES,GREEN,PSA (Right Move Real Estate Group- EXP Realty) 10 months ago

I feel that would-be agents are lured in by the thought of easy money. A few months later, their bubble has burst and they go on to just about any J.O.B.

Posted by Eva B. Liland with Century 21 Doug Anderson, Glad to be of Service (Century 21 Doug Anderson) 10 months ago

I have not seen any recruiting material from NAR, nor from my state association or local association. 

I believe my local association of Realtors is dedicated to providing good quality services to its members, but I have not seen any public-facing material targeting non-Realtors to become Realtors.

Posted by Dave Halpern, Louisville Short Sale Expert (Keller Williams Realty Louisville East (502) 664-7827) 9 months ago

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