Thousands of people in Colorado shifted careers during the pandemic, getting in on a hot real estate market where listings sold in a weekend and demand seemed insatiable. But as activity cools under the weight of higher interest rates, a reckoning awaits many of those who had hoped to make a living helping others buy and sell homes.

“I think we’re going to see a lot fewer real estate agents. It always happens when the number of transactions drops,” said Mike DelPrete, a real estate tech strategist based in Boulder. “Significant drops — and we’ll never hear about it because these agents don’t get laid off, they just quietly leave the business.”

Home sales in Colorado fell by a fifth last year and are expected to slow even more this year, reducing the number of agents needed to service the volume of transactions available. The mortgage industry suffered huge job losses last year, and the grim reaper could be coming for the careers of real estate agents this year.

“Our membership numbers are still at a record high. A lot of people are still getting into this business,” said Tyrone Adams, president and CEO of the Colorado Association of Realtors. “We keep saying we are going to see a dip, but until it happens, we are going to continue to ride the wave.”

Adams said there are roughly 44,000 licensed real estate agents in the state, and of those, about 29,000 carry a Realtor designation, which requires adherence to a stricter code of ethics and membership in a professional organization. That number is down from about 30,000 members last year.

While the ranks may thin, Adams doesn’t predict anything approaching the decline seen between 2008 and 2010, when CAR membership cratered from 28,000, not far off today’s levels, to about 18,000.

Most people who enter the business are gone within five years, if not sooner, and very few people are able to make a life-long career of it, given the difficulty in maintaining a steady flow of deals. Building a strong base of clients takes time and effort, agents said, and it is those relationships that allow someone to survive through the lean seasons.

“When the market seems overflowing and things are selling well, a lot of people decide they want to get into the business,” said Kelly Moye, with The Kelly Moye Team at Compass Real Estate in Broomfield.

She said the lure of real estate proved irresistible to many people who lost or left their jobs during the pandemic, and there was a misperception that easy money could be made. The industry has always been one of high turnover and a low survival rate among new entrants, with around 95% of the income flowing to the top 5% of brokers, Moye said.

“The Denver metro area, along with the entire country, is oversupplied with real estate agents,” said Steve Murray, president of Real Trends Consulting in Castle Rock.

Nationally, there are 1.6 million agents chasing what forecasts predict will be about 4.7 million existing home sales. Given that there is a buy-side and a sell-side to every deal, that works out to less than six transactions per year, not enough for most people to make a living off of once given the various costs involved, Murray said.

Nearly 104,000 home and condo sales involving a real estate professional took place in the state last year, according to the Colorado Association of Realtors. That represented 208,000 opportunities to earn a commission for 44,000 licensed agents or about five “sides” per agent.

Another way to look at the market is the total value of transactions or sales times price. About $34.5 billion worth of homes and condos traded hands in the metro area, down 12% from $39.3 billion in 2021, according to the Denver Metro Association of Realtors. Given that the commissions are based on the value of a transaction, typically in the 5% to 6% range, incomes took a hit, but from elevated levels.

Big increases in home prices have shifted the market. The sales volume was $33.3 billion in 2020 in metro Denver and $28.6 billion in 2019. If home prices start declining, which they appear ready to do, that will only add more downward pressure on agent incomes.

Many, if not most, licensed agents only do a transaction or two a year, or no transactions, and they often rely on another source of income. Some obtain a license to buy investment properties at a lower cost or to help friends and family out. Individuals who aren’t counting on a steady stream of commissions won’t feel the same pressure to drop out.

Small brokerages usually have low overhead and are fairly adaptable, and Murray predicts most should be OK. The largest firms, both public and private, have already tightened their belts, and have other business lines they can lean on, such as title or mortgage. Wall Street has been willing to fund many of the startups through a period of losses, and if all else fails, they can seek out a merger or acquisition.

Seattle-based Redfin, where agents are employees, cut about a quarter of its workforce and shuttered its home-flipping business last year. New York brokerage Compass has had four rounds of layoffs since June. Moye, who is part of the Compass group, said the belt-tightening is necessary to survive a slower market, adding she is encouraged that Compass CEO Robert Reffkin was proactive.

“He saw the shift in the market and he saw what would happen. It is a huge priority to keep our company profitable. The only way to do that was to lay off and cut costs. I appreciate that he did it,” she said. “The worst case is when your company isn’t paying attention.”

Agents said that the new entrants who haven’t had enough time to gain the experience needed or build up their client base are also at risk. And Murray said the middle-sized brokerages are the ones he expects to face the biggest challenges in the months ahead.

“They are not large enough to have significant related services businesses, generally, and don’t have a lot of costs that they can cut,” he said. They are facing intense pressures, as all firms are, to compete for and retain the most productive agents and teams.

Given that a large share of transactions are concentrated in the hands of a small group of top performers, recruiting proven winners has become a go-to strategy for many brokerage firms, well before the current downturn.

“It is always a challenge in any market for a brokerage to retain agents and those agents have plenty of choices,” said Greg Zadel at Zadel Realty in Firestone. “They can go to work for another broker or go out on their own.”

Zadel, who has survived several real estate cycles since the 1980s, said most newcomers only make it two or three years, about the time it takes to burn through their sphere of influence, the people in their social circle, before moving on. Down markets will only accelerate that trend.

“I joke that I haven’t ever worked for anybody, but I apply to work for someone every day of my life. You do your marketing no matter what the market is doing. If I drop off your radar, I have lost out. I have to stay in front of people forever,” he said.

It could take knowing a potential client for 10 years before they ask for help to buy or sell a home, Zadel said. And at that point, there might be eight or 10 other Realtors they also know. The key is to be “the” person a client thinks about calling first.

“To develop that relationship takes time, commitment and a bit of money,” he said.

The count of licensed real estate agents, who are called associate brokers in Colorado if they have under two years of experience, might not drop right away given that renewals are on a three-year cycle, Adams said. Memberships in CAR and its affiliated Realtor associations are renewed annually, so that could provide a more timely indicator.

Even if there is a big shakeout at real estate brokerages, it likely won’t change the state’s official payroll numbers much. Only one in 20 Realtors is an employee, and nearly 9 in 10 are independent contractors. That is much different than in the mortgage industry, where large firms dominated and most workers were employees.

Colorado gained an estimated 104,700 nonfarm jobs last year, but financial activities — which includes real estate, as well as banking, mortgage and insurance — lost 3,400 jobs. The losses appear highly concentrated within the mortgage industry.

In 2021, the state’s residential real estate industry generated $48.6 billion of direct economic activity, with buyers spending another $5 billion after a home purchase, and new home construction contributed another $89.9 billion, according to the National Association of Realtors. That makes residential real estate a bigger driver of economic activity in the state than tourism, agriculture and even professional services.