Story By Joe Zlomek

Some real estate brokers believe the fastest road to increased profitability is to exploit a hot market, one in which homes are selling at higher values … the same kind of market experienced across the United States in recent years. In pursuing this goal, a number of brokers heightened their agent recruiting efforts. They assumed that having a larger sales staff in boom times would inevitably lead to more dollars.

Economic researchers say that’s just not true.

In a study published by the Journal of Political Economy in October 2003, economists Enrico Moretti and Chang-Tai Hsieh examined real estate brokerages in 282 U.S. metropolitan markets during a 10-year period. Predictably, they found that when housing prices rose the number of agents did as well. However, they also found that acquiring new clients became more difficult with greater agent competition. Consequently, the increase in agents reduced the number of houses sold per agent by almost exactly the same proportion as the price increase. The direct correlation between higher housing prices and lower agent productivity held true across all markets, the study determined.

The answer for brokerage success is not in adding agents. Instead, it lies in improving training for agents the broker already has.