The 80-20 Rule In Real Estate
We often hear about the 80-20 rule, also known as the Pareto principle which recognizes "the law of the vital few,", and states that for many events, roughly 80% of the effects come from 20% of the causes. This principle has been erroneously applied to many business observations and we often hear people say things like "80% of the people do 20% of the work, and vice-versa."
Knowing that I will research and graph anything, I decided to put the 80-20 rule to the test for real estate sales. As you might imagine, the rule did not hold up.
In the real estate graph above, the horizontal axis measures the percentage of the business conducted, while the vertical axis measures the percentage of agents involved. The data comes from the Tallahassee Board Of REALTORS® Multiple Listing Service (Tallahassee MLS), and the numbers are similar to the last time I measured agent share of the market.
The graph measured unique sales recorded in the Tallahassee MLS from March 1, 2010 through February 28, 2011 (one full year). What we find is the 80-20 rule should be the 80-35 rule! Additionally, many sage real estate reporters claim that even more of the business is being done by fewer agents, and that perhaps we are moving to a "90-10" rule. In Tallahassee, 90% of the business is done by 52% of the agents.
- Roughly 1/3 of the agents do 80% of the real estate sales
- Roughly 1/2 of the agents do 90% of the real estate sales
Another factor not measured in this that would make the numbers move even further from the 80-20 rule is that many real estate sales in the MLS are often reported as "team" sales, meaning the work of 2, 5 or even 15 people are recorded under 1 person's name. The fact is, the 80-20 rule has been completely busted in the Tallahassee real estate market.
So the next time you hear somebody make a wild claim of the 80-20 rule, ask them if they have actually ever measured it. Most likely they haven't and most likely they are just parroting something that they have heard.
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