Today's post at The Big Questions reminds me of something A-Tab posted a while back on MR. Funnily enough, the first roleplaying game I ever played with Bryan Caplan was based on the MR post. The puzzle is why is it that real estate agents regularly and routinely charge 6% on every sale? Why not 5%? Why not a sliding scale?
So that's at least two fairly well-renowned economists who find preliminary evidence contradicting the basic economics principles of competition: there should be an arbitrage opportunity for some enterprising agent to cut her commission by a few basis points to make up in volume what she loses in the per-sale cut. My suspicion is that what appears as price fixing is just a coordination mechanism: agents can expect to be on either side of any given transaction for any given sale and the standard fee is a handy coordination mechanism. Sticking to the standard 6% is a signal of conformity, thus reducing transaction costs. Other agents would likely feel uncomfortable listing with mavericks. But not with Goose or Iceman.
I don't know where the average citizen stands on the euvoluntarity of real estate sales. I don't often hear that the agents themselves are prone to exploitation (lenders are another matter altogether). I think the difference might be that buyers and sellers spend plenty of face time with their agents. In Hansonian terms, homeowners deal with agents in near mode and are therefore more willing to accept nuance and detail. It's harder to be critical of people you know personally.
For all the other state interventions in housing markets, the realty business itself does a pretty good job of self-regulation. The National Association of Realtors helps agents comply with the bizarre tangle of regulations, but is a voluntary organization. There are licensing requirements, sure, but that ain't saying much in a nation that requires barbers to attend school and pay hefty fees for haircut credentials.
Now, I'm not saying that folks don't find unfairness in housing purchases, but it is interesting that almost none of it seems to be pinned on the line workers, the realtors. How peculiar.
Sticking to the standard 6% is a signal of conformity, thus reducing transaction costs. Other agents would likely feel uncomfortable listing with mavericks. But not with Goose or Iceman.
ReplyDeleteThis is true to the agents I know. They are afraid that if they slide to 5% and deliver only 2.5% to the other side, they get black-balled. Our agent, however, took the slide only on her end. She advised that she would list for 5% and gave the other side the full 3%. She did this but asked us not to tell.
Now, I'm not saying that folks don't find unfairness in housing purchases, but it is interesting that almost none of it seems to be pinned on the line workers, the realtors. How peculiar.
Wasn't there some research done awhile back that showed agents are more willing to "meet in the middle" for their listings than they are for their own home. The idea being that there isn't much difference in 3% [or 2%] of $125,000 and $129,500. So they give on the negotiation. But when that changes from 3% of $4,500 to the actual full $4,500, they hold out.
The whole thing is in Freakenomics I think.