This classification includes establishments primarily engaged in renting, buying, selling, managing, and appraising real estate for others.
531210 (Offices of Real Estate Agents and Brokers)
813990 (Other Similar Organizations)
531311 (Residential Property Managers)
531312 (Nonresidential Property Managers)
531320 (Offices of Real Estate Appraisers)
812220 (Cemeteries and Crematories)
531390 (Other Activities Related to Real Estate)
Real estate agents and managers assist people who are purchasing, selling, leasing, financing, and building places to live. The industry also includes agents and managers who work on commercial real estate, including high-rise office buildings, shopping centers, industrial plants, ranches, medical centers, museums, and theaters.
The real estate industry employs hundreds of thousands of full- and part-time workers in the United States, including real estate agents who assist buyers and sellers of property, mortgage brokers who assist with financing, leasing agents who lease residential and commercial real estate, property managers who manage the property of others, appraisers who analyze the fair market value of property, and developers who build new structures. In 2001, there were approximately 2.3 million real estate agents with licenses in the United States.
The overall health of the real estate industry is closely intertwined with swings in the economy. As businesses grow, they generally acquire more real estate to expand their plants and hire more workers. The supply and demand of available homes, office buildings, and other real estate are strongly influenced by the availability of financing for developers who develop land into residential and business properties. Thus, during periods of tight credit and declining economic activity, real estate activity is low. Changes in tax laws and interest rates also have a great impact on the real estate industry.
Real estate is a service business involving a variety of professionals who act in concert to bring about the purchase, sale, financing, leasing, or construction of property. It can involve residential real estate, commercial real estate, industrial property, agricultural land, or vacant lots.
Real estate brokers or agents generally earn their income from commissions on the purchase, sale, or leasing of real estate. In most states, a real estate broker holds an advanced license and manages an office of real estate agents. The agents have less experience and work under the supervision of a broker. When the agent earns a commission, it is usually split between the agent and the supervising broker. The term "realtor" is a registered term belonging to the National Association of Realtors, and only brokers and agents who belong to the organization may use the term.
Homeowners usually consult one or more real estate agents when trying to sell a home. The agents discuss with the homeowners the price at which the property might sell, develop their plans for marketing the property, outline the strengths and weaknesses of the property, and determine how the property compares to other homes on the market. The seller then selects one agent to market the property and represent his or her interests when it comes to negotiating a contract of sale. The agent and the seller sign a contract authorizing the agent to act on behalf of the seller and market the property, in exchange for a specified commission upon the sale of the property. If a buyer is not found for the property, the agent does not receive any commission.
Likewise, buyers of residential real estate generally contact one or more agents to scout neighborhoods for homes fitting their requirements in terms of size, price, location, and amenities. The agent then represents the buyer in negotiating a contract and assists in obtaining inspections of the property by experts, such as structural and termite inspectors, and may assist the buyer in obtaining a mortgage loan.
Some real estate agents are relocation specialists and work primarily to assist individuals who are relocating to another geographic area. They must have extensive knowledge of school facilities and other neighborhood attributes in order to properly serve their clients. They are sometimes paid by an employer that is relocating its employees.
Commercial real estate agents work in a similar fashion when the purchase or sale of commercial property is contemplated. This could include nearly any type of property used in a business. Commercial real estate agents' knowledge must include those factors of special concern to businesses, including available housing for employees, school facilities for employees' children, and the availability of an appropriate labor force.
Leasing commercial real estate is another area in which many real estate agents are employed, particularly in major metropolitan regions. The leasing agent's purpose is to keep the building fully occupied while obtaining the highest possible rental rates. This job requires the agent to have a thorough knowledge of the rental rates in the local market and to keep abreast of anything that may affect the market. Local laws affecting real estate development and rent control laws have significant impact on the real estate market, and agents must also be knowledgeable of any changes in such laws.
Leasing procedures vary, but the agent generally receives a commission based on the total value of the lease. The longer the lease term, the higher the commission. Office leases generally are for longer time periods than residential leases, often having a term of 3 to 15 years. The leasing agent must advertise the property and use every possible sales tool when leasing a brand-new property, as it is important to the owner that the building be rented as quickly as possible without long exposure in the marketplace.
A large branch of the real estate industry involves managing property owned by others. Leasing commercial property is often one of the functions of a property manager. The modern-day property manager acts as an adviser and agent of the owner and is primarily concerned with establishing rental rates, advertising and leasing the property, and negotiating leases. Property managers also collect rents; make sure that mortgages, taxes, insurance premiums, and other bills are paid; act as liaisons to tenants; and make sure the building is maintained in good working order. They supervise and hire the building staff and may contract for janitorial, engineering, security, and refuse services. They often do the bookkeeping for the property and prepare periodic financial reports for the owner. Owners of office buildings, shopping centers, apartments, and other income-producing properties usually hire a real estate firm to manage the property.
The appraisal of real estate values is a specialized segment of the real estate industry. An appraisal might be done to determine the value of a home that an individual wants to sell, or it may be done at the request of a lending institution that is considering providing a mortgage loan to a prospective buyer. Appraisers use accepted methods to determine the value of a piece of property and generally express an opinion on the fair market value, insurable value, or investment value of the property. Real estate appraisers visit the property, search public records, and interview those with knowledge about the property and the surrounding community, taking into consideration the structural quality and overall condition of the property. Any trends in real estate or imminent changes in the community that could influence the value of the property are also taken into account when appraising the property. Many appraisers specialize in particular types of property, such as residential properties, commercial office buildings, or shopping centers.
The real estate industry experienced strong growth during the last half of the 1990s, spurred by low interest rates for real estate loans. From the beginning of 1997 until the middle of 1998, home sales grew each quarter. However, confidence in both the residential and commercial segments of the market began to drop in the second quarter of 1998. According to a survey by the Federal Deposit Insurance Corporation (FDIC), this change was largely attributed to assessments that conditions were unchanged from the previous quarter, rather than improving, as had been the case throughout the previous year. Expansion in the field responded to these trends, with 13 percent of residential real estate firms opening new offices in 1998, whereas only 3 percent shut down an office.
Like many other industries in the 1990s, the field of real estate saw its share of acquisitions and mergers among the larger firms. Still, small, local establishments remained the norm. In 1999, 83 percent of the firms in the field operated from only one office, and 60 percent of them had five or fewer agents. Only 22 percent of real estate establishments were affiliated with a regional or national franchising operation.
There also has been a strong move toward diversification of business activities, as well as toward providing services beyond those of the traditional agent/broker roles. Many of the largest real estate firms have begun offering their clients title insurance, mortgage loans, and similar extended services. Brokers and agents who represent only buyers of real estate also have been growing in numbers and are represented by the National Association of Exclusive Buyer Agents.
Real estate brokers have also benefited from using the latest in computer technology. Basic information about all of an agency's listings are routinely placed on office computers. In addition, real estate advertisements, complete with photographs and listing information, began to appear routinely on Internet sites in the mid-1990s. About 64 percent of residential real estate agencies had listings on REALTOR.COM, sponsored by the National Association of Realtors, in 1999.
In 2001 there were approximately 2.3 million licensed real estate agents, an increase of 10 percent from 2000 and the first large increase in 15 years. One reason for the increase was that the housing market was strong in 2001 and 2002, while others sectors struggled in the weak economy of that time. Continued low interest rates—at one time the lowest in 40 years—combined with housing affordability and a gradual turnaround in the economy were other major factors for this sector's success.
There were a record 5.3 million existing homes sales in 2001—the highest level since 1968, when sales tracking began—while estimates showed that 2002 existing home sales would break that record with 5.31 million. During the economic boom of 2000, existing home sales were 5.15 million and home ownership peaked that year, with 67.7 percent of Americans owning homes. New home sales in 2002 were estimated to decline by 4.4 percent. The median existing home price was forecast to rise 5.1 percent in 2002 to $155,300, while new home prices were expected to climb 6.1 percent to $184,700.
Analysts predicted that existing home sales would level off somewhat in 2003, with an estimated 5.34 million home sales, and decline the following year, with a predicted 5.27 million existing homes sales in 2004. Interest rates were a factor in these declining numbers, as they were forecast to gradually rise as the economy improved. Fixed-rate interest rates dipped below 6 percent in 2003 but were expected to climb to nearly 7 percent in 2004.
More consumers are using the Internet as a tool in the home-buying process. According to the National Association of Realtors (NAR), 41 percent of buyers use the Internet to narrow down home choices. One study in California showed that 46 percent of Internet buyers, the largest segment, were non-Hispanic whites who also made up 60 percent of traditional buyers. Asians made up 30 percent of Internet buyers and accounted for 19 percent of traditional buyers. Hispanics made up 18 percent of Internet buyers and 16 percent of traditional buyers. Native Americans and African Americans accounted for 6 percent of Internet and 5 percent of traditional buyers.
Although real estate agencies tend to be local operations, a few national and multinational firms generate a large volume of business. Cendant Corporation is the largest corporation involved in the field, owning both Century 21 and Coldwell Banker, the number one and number three agencies in the field. Century 21 operates more than 6,500 offices worldwide, whereas Coldwell Banker has more than 3,200 franchised brokerages. Cendant generated more than $14 billion in total revenue in 2002. RE/MAX Realty, based in Denver, also has a large presence, with more than 4,500 offices in more than 40 countries worldwide.
Every state and the District of Columbia require that real estate brokers and agents be licensed. They must complete educational courses in the fundamentals of real estate and pass a written examination. Appraisers of property financed by federally regulated lenders must be certified within their states.
The real estate industry employed 408,000 agents, brokers, and appraisers nationwide in full- and part-time employment in 1996. Most of these people worked on a commission or fee basis rather than as employees. Many real estate agents begin working part-time because of the intermittent income the work provides. Though agents are essentially independent contractors, most are affiliated with a nationally known or local brokerage firm. By 2001, there were a record 2.3 million agents holding licenses, up 10 percent from 2000 and the first major increase in 15 years.
As sales commissions can be high on many properties, successful real estate agents can earn large amounts of money. However, only a small percentage of agents actually do so. The median annual income for full-time agents, brokers, and appraisers was $31,500 in 1996. Half of these workers received between $20,500 and $49,700. The number of agents, brokers, and appraisers employed was expected to grow more slowly than other occupations through 2006. Still, 778,500 people were expected to be working in the field by then, an increase of nearly 90,000 from 1997. Opportunities also exist in this area due to the high turnover characteristic of the profession.
There were approximately 271,000 real estate managers in 1996, most working for property management firms, development companies, banks, government agencies, and other entities. There also was a large group of self-employed developers, owner-managers of buildings, and operators of building management firms. Approximately 40 percent of property managers were self-employed in 1996. No formal certification or licensing was required except for managers of federally subsidized housing, who had to be state-certified. Many other managers completed training programs that included certification by the sponsoring organization, such as the Institute of Real Estate Management (IREM).
The National Association of Realtors reported that the average associate earned $41,000 as of 2002. Although growth in the field was booming in 2001 and 2002, growth in this field was expected to be average through 2006, partly because of the rise in Internet use among homebuyers. Increased demand for managers is expected in commercial and residential real estate, as trade continues to expand and new housing construction continues the trend of creating homeowner associations for residents. Employers of real estate managers are expected to increasingly turn to hiring college graduates with degrees in business administration and fields related to real estate.
The U.S. real estate industry taps the market within the former Communist countries of eastern Europe, such as Russia and Hungary, where ownership of private property is now legal. Beginning in 1993, the IREM began to enter into partnerships with real estate associations in those countries to help in the training of real estate personnel and the adoption of national standards. By mid-1996, there were 28 such partnerships in effect. The IREM also had partnership arrangements in Canada, Mexico, Singapore, and Spain. The National Association of Realtors was conducting similar activities in eastern Europe and entered into agreements with five countries—Bulgaria, the Czech Republic, Hungary, Poland, and Russia—at its annual convention in 1996. In addition to industry-wide efforts such as these, individual firms are entering the real estate markets of other countries. In 1998 Coldwell Banker began entering into franchise arrangements with brokers and agencies in Mexico.
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