Money Management

There are more than 2 million licensed real estate professionals in the U.S. Here’s how the glut costs the average buyer and seller money. 

According to the Association of Real Estate Licence Professionals (ARELLO), the total number of real estate licenses nationwide is somewhere between 2 million and 2.5 million. Here, we’ll lay out how the number of agents is believed to be hurting the housing market and costing the consumer money.

Competition among real estate agents

This summer, Stephen Brobeck, Senior Fellow at the Consumer Federal of America, released a study called A Surfeit of Real Estate Agents: Industry and Consumer Impacts. The study neatly lays out how overcrowding in the real estate business impacts the bank accounts of both agents and consumers. Based on a 2022 survey of 9,220 real estate agents, Brobeck learned that:

Most sales agents report spending a median of 30 hours a week at work. In other words, they do not work full-time.And 18% of agents say they worked less than 20 hours weekly.Only brokers and broker associates reported working 40 hours a week.In 2021, sales agents earned a median gross income of $38,300.Also in 2021, 64% of agents with two years or less of experience had annual net incomes below $10,000.Real estate agents with three to five years of experience had a median income of $34,200.Agents with six to 15 years of experience reported a median income of $51,700.

The high cost of buying and selling

Think back to the last time you sold a home through a real estate agent. Were you surprised by how much you paid in fees? Chances are, you paid around 6% in real estate commissions, 3% to the selling agent and 3% to the buyer’s agent. Add to that closing costs. As the seller, you were responsible for title fees, escrow fees, real estate transfer taxes, reconveyance fees, and more. This typically totals around 3% of the total sales price. That’s a total of 9% going toward fees.

To give you an idea of how big a bite these fees take out of sales proceeds, imagine that you sold your home for $300,000. A whopping $27,000 in fees would come off the top ($300,000 x .09).

Home sellers worked hard to build equity, and a hit this big is a bitter pill to swallow. That’s why most build the expense into the price of their home, passing the cost along to the home buyer. It’s difficult to calculate how many millions of dollars home buyers spend each year, covering the sky-high expenses faced by sellers.

Stuck in the middle

As mentioned, most real estate agents are not getting rich. In fact, that 3% paid to each agent once a sale closes does not go right into their pocket or investment account. From that 3% (sometimes less), the seller’s agent must pay:

20% to 50% of their commission to their broker, depending on which real estate company they’re withMLS listing feesProfessional photographyMarketing expenses

And if your home fails to sell, it’s the real estate agent who’s out all that cash.

So, why don’t agents just lower their fees?

Real estate agents are not blind to the high cost of selling a home. Some will accept a fee of 2.5% instead of 3%. Still, there is no motivation for groups like the National Association of Realtors (NAR) to support lower fees. The sheer number of real estate agents holding licenses to sell in the U.S. makes it next to impossible for agents to accept less. Here’s why:

There were 5.95 million homes sold in the U.S in 2022.There were at least 2 million agents with an active license in 2022.If the number of homes sold was divided equally between those 2 million agents, that means that each would have sold fewer than three properties in 2022.

Of course, there are high-volume sellers and low-volume sellers, so sales numbers are never equal. However, the fact that so many people are vying for the same business makes it difficult for an agent to earn a livable wage.

The consumer ultimately pays

Even if we put aside the fact that it’s the American consumer who must pay high fees to keep the average real estate agent afloat, there are other ways the crowded field of real estate sales costs the public.

One statistic frequently cited claims that 87% of real estate agents fail. Even if the reality is half that dramatic, that means that people are continually cycling in and out of the real estate business. Like any job, it takes time to learn to be a great agent and many agents don’t have the experience they need to represent their clients well. Here are some of the concerns agents raised while completing the Consumer Federal of America survey:

“After two decades I found about 20% of my transactions were with highly competent, professional agents. The rest of the time I was handling transaction issues that the other agent either ignored or was unable to solve.””Too many weekend warriors passing themselves off as experts…with one or two transactions under their belt, and looking to make a fast buck.””I’m just at my wit’s end with the agents I’ve had to do deals with this year…I can confidently say only 1 in 10 agents I deal with are competent, professional, and honest. The other 9 out of 10 are lazy, uneducated, lie, and do shady business. How is this possible? How is this one industry so lacking in professionalism? Maybe I’m expecting too much as my background is in law and attorneys are forced to be professional.”

It’s important to note that Brobeck’s study found that consumers are generally satisfied with their real estate agents, despite how agents may feel about the industry. If a client doesn’t realize that they’re working with a less-than-competent agent, they don’t know when it’s time to cut ties with that agent.

Perhaps these agents were frustrated at the time they answered the survey question. But even if they’re partially correct, that means some consumers put their trust into unqualified agents when making one of the largest financial decisions of their lives — and that’s a problem.

The more real estate agents enter the industry, the more competition there is. The greater the competition, the more agents are forced to spend on marketing. And at the end of the day, it’s the consumer who pays the price.

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Impulse buying is incredibly common and it can make your financial life a lot harder. Read on to learn ways to stop wasting money on unnecessary items. 

Impulse shopping is incredibly common. A Slickdeals study revealed the average American made six impulse purchases per month in 2023. The average spending on these impulse purchases was $151 monthly, which adds up to just over $1,800 a year! That’s a pretty big amount to come out of your bank account.

Unfortunately, impulse spending can leave you faced with regrets — especially if it’s leaving you with a credit card bill you can’t pay or making it harder to do other things you want with your money. The good news, though, is that there are ways to stop spending on stuff you don’t really need and didn’t plan to buy.

Here are a few options.

1. Set a 24-hour rule

One way to curb spending on things you don’t really need is to force yourself to take the time to think about a purchase. Specifically, you can set a rule that if you see something you want to buy that wasn’t planned, you’ll wait 24 hours before you purchase it. If you still want the item, you can go back and buy it.

This is one of my favorite ways to stop buying unnecessary stuff because it provides flexibility. About 75% of the time, I find that after thinking about it for 24 hours, I don’t end up wanting the impulse item — or it feels like too much hassle to go back and get it (even if it’s just purchasing it from a website). But, if I think about the purchase for a whole day and decide I still really want it, then it likely won’t end up being something I regret.

This rule is a great way to distinguish between bad and good impulse buys. Another Slickdeals study found that as many as 58% of people said their impulse purchases actually saved them money, so not all unplanned buys are for unnecessary junk.

2. Track your spending

Tracking how you spend your money is another great way to avoid buying junk. Like the first rule, this process makes you more conscious of what you’re doing with your money since you’ll be writing down all your purchases.

I’ve found this has helped me identify when I feel silly spending on something because I don’t really want to write it in my spending spreadsheet. If recording a particular purchase makes you uncomfortable, you probably won’t follow through with buying the item.

3. Put a picture of your financial goals in your wallet

Whenever you buy something, there’s an opportunity cost. You’re using that money for the item, rather than for your financial goals. Sometimes, that makes sense. After all, you need to buy things like food and clothing and can’t deprive yourself of all fun spending. But, most people don’t really think about the trade-off they’re actually making when they buy something on impulse.

Putting a picture of your financial goal in your wallet where you keep your credit cards can make you pause to consider whether you really want that item or whether you’d rather have that bigger house or the early retirement or the trip to far-flung destinations.

For a long time, my goal was to buy a house in a particular expensive area. I put a picture of my dream home in my wallet and when I reached for my card to buy something, about 50% of the time, I decided I wanted the house more so I’d rather save the cash.

Each of these techniques can really help you consider whether the stuff you’re buying is something you need, and is worth the cost of your hard-earned money. Give one or all of them a try today and see if it stops you from bringing junk purchases home.

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An emergency fund helps you avoid major financial problems if you experience a loss of income or illness. Read on for three disasters it could save you from. 

Having an emergency fund in a high-yield savings account shouldn’t be viewed as optional.

While it may be difficult to save up cash for unexpected expenses, you need to prioritize doing so in order to reduce the risk of a long-term financial disaster resulting from a bump in the road.

Here are three ways that having three to six months of living expenses saved could help avoid a long-term crisis that affects you for years.

1. It could allow you to keep paying your mortgage to avoid foreclosure

If you experience a serious bump in the road, like a job loss or an illness, you could be left unable to pay your housing bills. And, this could be devastating. The National Bureau of Economic Research revealed that 94% of mortgage foreclosures occur as a result of negative life events such as unemployment, divorce, or medical issues.

If you’re foreclosed on, you’ll lose a lot of the equity in your house. Your credit will be severely damaged so it may be difficult to borrow again or find a landlord willing to rent to you. It could take you years to get back to the same position.

An emergency fund allows you to avoid this by enabling you to keep making payments on your home either until you get back on your feet or until you have time to sell it for enough to pay off your mortgage and hopefully walk away with some profit.

2. It could help you ensure your car doesn’t get repossessed

Many borrowers have to stretch to afford a car, and many take on expensive car loans with long repayment terms. In fact, at the start of 2023, a record number of consumers (15.7%) committed to monthly costs of $1,000 or more for their auto loans, according to data from Edmunds.

If you have unexpected expenses, a job loss, or other issues that persist for a few months, you may find yourself unable to face these payments. This could lead to vehicle repossession. This will also damage your credit score, plus it will leave you without a car you may need to get to work.

If your car is repossessed and the lender doesn’t get all their money back from reselling it — a common outcome, since many cars are worth less than what you owe — you could also find yourself stuck making ongoing payments on a car you no longer own.

If you have an emergency fund, you can keep making your car payments even when your income takes a hit. This could give you the chance to keep the vehicle. Or, if you won’t be in a position to start making payments again, your emergency fund could enable you to sell the car while repaying any remaining balance of your loan if your car isn’t worth what you owe.

3. It can save you from getting trapped in a debt cycle

Finally, an emergency fund can keep you from becoming trapped in a cycle of debt that lasts for years to come.

Say, for example, you’re living paycheck to paycheck with no money in the bank, no extra funds, and you have a $1,000 emergency. If you have to borrow for that $1,000 on a credit card at 20%, you’d have a minimum payment of around $27. That would mean, even if you paid the minimum, you’d now be $27 further behind every month. You’d either have to cut back or borrow an extra $27 a month each month to maintain your current spending levels.

And, if you did that and just paid the minimums, it would take you 117 months to become debt-free, and you’d pay an extra $1,056.74 in interest — more than the cost of your initial emergency.

If you have multiple emergencies over that 117 months, you could keep adding to that balance, resulting in a higher monthly payment, a bigger shortfall, and even more challenges making ends meet. Or, if you wanted to pay extra on your debt, it would be even harder to pay the bills each month.

You don’t want to face any of these outcomes. So, start working on saving for emergencies right now. Open a high-yield savings account and find just $10 to transfer into it — perhaps by bringing lunch to work instead of buying tomorrow or using some coupons and shopping the sales flier on your next trip to the grocery store.

Then, keep working on adding to that emergency fund a little at a time or whenever you get extra money such as a tax refund or a bonus at work, extra money from a side gig, or birthday money. Even a small emergency fund is better than nothing and, if you are diligent about finding extra cash to put into it each month, it will eventually grow to provide the protection against disaster that you deserve.

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You might struggle to buy a starter home. Read on to see why. 

Many people are having a hard time buying a home this year. Not only has it gotten very expensive to sign a mortgage, but the real estate market has sorely lacked inventory for months.

In fact, as of the end of June, there was only a 3.1-month supply of available homes nationwide, according to the National Association of Realtors. It can commonly take up to a six-month supply for there to be enough available homes to fully meet buyer demand.

Meanwhile, it’s common for first-time home buyers to look at starter homes — properties that are on the smaller side and sometimes need updating. Starter homes tend to be more affordable than forever homes. And because of their size, they often entail less ongoing work and maintenance (though there can sometimes be a fair amount of work initially to get a starter home into better shape). But you might struggle to find a starter home today for one big reason.

When you’re competing with investors with loads of capital

Many home buyers need to turn to mortgage lenders for financing so they can purchase a home. But a lot of first-time buyers today are competing with investors for a limited supply of starter homes. And given that many investors have the resources to scoop up those homes by paying cash, it’s pretty clear that everyday buyers are in a tough spot.

A recent Redfin tweet pointed out that 37% of U.S. starter homes were purchased in cash in May, up from 35% a year earlier. Redfin then went on to say that “real estate investors are buying up a sizable chunk of today’s affordable homes.”

Why do investors want to own starter homes? It’s simple. They want to make money from them. And they can do so in a couple of ways.

For homes that need updates, investors can do a house flip and score a near-term profit. For starter properties that are already in decent shape, investors can turn them into rentals and secure a steady stream of ongoing income.

So why would investors focus on starter homes? The reason is that they’re commonly easier to flip than larger homes, and they’re also easier to rent.

In a given neighborhood, a starter home might be able to command a monthly rent of $1,000. A larger home might go for $2,000. But people who can afford that higher amount of rent may be more likely to be in a position to buy a home of their own. So investors tend to target starter homes because they’re more likely to enjoy a steady stream of paying tenants.

How to buy a starter home in today’s market

It may be more difficult to buy a starter home in today’s real estate market, but that doesn’t mean it can’t be done. First, find a real estate agent who has a reputation for moving quickly and being a savvy negotiator. That way, you may be more likely to find starter homes when they first hit the market so you can get an offer in before the competition mounts.

Next, make a list of your home’s must-haves, but try to be judicious. Having fewer requirements could make it more likely that you’ll find a home you deem suitable.

Also, be open to repairs. You might prefer a starter home that needs less work. But in some cases, extensive updates can deter investors because they commonly want to see quick profits. If you’re handy and can handle a series of updates over time, you may end up finding a starter property to call home.

Having to compete with investors for a limited supply of starter homes is aggravating. But with the right strategy, you can increase your chances of being successful.

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Is a Costco membership worth paying for? Keep reading to learn how buying gas can make that membership fee a good investment. 

Costco is a beloved warehouse club for good reason. The deals that the store offers tend to help people spend less on their credit cards for basic necessities like groceries and household products. Plus, Costco’s Kirkland brand has many devoted fans because of its unique offerings and quality.

But it also costs money to be a warehouse club member. And you need to make sure that paying the fees out of your bank account is worth it for you. The fees can be justified by saving on home essentials like pantry items and frozen food. But they can also be justified by the gas savings you can benefit from if you fill up your tank at the warehouse club.

The big question you should answer, though, is how much gas you’d actually have to buy there for a membership to pay for itself. Here’s how you can figure that out.

Will gas savings make your Costco membership worth it?

There’s a very simple way to determine if you can justify a Costco membership just based on gas savings alone. You’ll need to determine how many times you’d have to fill up each month at Costco for the membership to pay for itself — and then ask yourself if you’re likely to hit the club’s gas station at that frequency.

The least expensive Costco membership, called a Gold Star membership, costs $60 per year. You can figure out if your gas savings will cover that cost by doing the following calculation:

$60 (for the membership fee) divided by the number of gallons in your gas tank times the amount that you save by shopping at Costco.

Let’s take a look at some examples. Say that gas costs $3.87 per gallon (which is the current national average as of Aug. 16, 2023, according to AAA). Costco gas tends to be around $0.16 to $0.20 per gallon cheaper than what competitors offer. So, you might be able to get your gas for around $3.67 to $3.71 at Costco. And let’s say your car holds 14.5 gallons of gas.

If you’re saving $0.20 per gallon and you put 14.5 gallons in your car at a time, you’d save $2.90 each time you filled up your tank. Divide this amount by the $60 annual membership cost to find that you would need to fill up your car about 21 times per year at Costco in order to break even for the membership fee.

If you end up filling your car at Costco just twice a month, you’d more than cover the membership cost.

Should you join Costco for the gas savings alone?

Since most people fill up their tank more than twice per month, it may seem like an easy call to join Costco and assume the gas savings will justify the price. But you should also consider other factors, such as the following:

Is it convenient for you to fill up at Costco? If you have to drive out of your way to get your gas there, it may not be worth it. You’d be wasting time, which has value, and would negate some of the savings due to the extra driving. Plus, you might not follow through on going there if it ends up being a hassle. Will you overspend at Costco in other ways? It does you little good to save a bit on gas if the club presents too great a temptation and you end up filling your cart with a giant tub of Cheetos you can’t finish before they go bad or splurging on a giant jigsaw puzzle you spotted on your way to the grocery aisle. Costco is very good at encouraging spending by making you feel like you’re getting a deal, by regularly moving items around so you have to walk through the whole store to find what you need, and by presenting limited-time deals to give you a sense you may miss out if you don’t buy. If you can’t control your spending, then not getting a membership eliminates that temptation.

Now, if you can count on yourself to get gas there and you know you’ll spend responsibly, then there’s little reason not to get a membership when the fuel savings covers it — especially since you may find yourself also saving on other items as well. Just be sure that you think carefully about whether a membership really makes sense for you before you dive in.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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