My mom mentioned this yesterday, though I didn’t see it online and I’m too lazy to do a deep search: there is now apparently one realtor for every 200 people in Bend, according to The Bulletin. Wow.
I figure this should be good fodder for the newish Bend, Oregon Housing Bubble blog.
A couple of economists published a paper through the National Bureau of Economic Research saying that the existing system (where anyone can become a real estate agent fairly easily, and real estate agents always get a 6% commission) does not create a lot of money for most real estate agents.
They said that real estate agents who arrive in a housing boomtown are generally not going to have an easy time. The authors wrote that "the entry of real-estate agents into cities with high housing prices is socially inefficient. Consistent with our model, we find that when the average price of land in a city increases, (1) the fraction of real-estate brokers in a city increases; (2) the productivity of an average real-estate agent (houses sold per hour worked) falls; and (3) the real wage of a typical real-estate agent remains unchanged."
They express surprise that the 6% commission is so universal: "The apparent uniformity of cornmission rates present an enormous puzzle, especially if one believes that the cost and effort necessary to sell a house does not increase one-to-one with the price of housing. Why do commission rates appear to be so insensitive to economic forces? We do not have an answer to this puzzle."
In other words, why don’t homeowners say, "hey, it took you the same amount of effort to sell my million-dollar house as it takes you to sell a $100,000 condo, but your commission is ten times more," and explore other, cheaper possibilities?
The study asks whether it’s due to a conspiracy among real estate agents. They ask, if the real estate agents are so good at conspiring, why don’t they conspire to keep new real estate agents from entering the business? The fact that it’s so easy to become a real estate agent is the reason why it’s so tough to get rich as a real estate agent.
The economists conclude: "The outcome of a fixed commission is truly tragic: real estate agents are no better off in cities where housing prices have increased, yet home-owners and home-sellers are clearly worse off."
In other words, in a boom market, if it were more difficult to enter a particular market as a real estate agent, the existing agents would make more money. But since it’s so easy to become a real estate agent, new ones simply cannibalize business from established ones. And buyers and sellers pay more, but it’s spread around more people.
Here’s the link to that study done for the National Bureau for Economic Research: http://www.nber.org/papers/w9208
It’s also on the Freakanomics website at http://www.freakanomics.com/pdf/HsiehMorettiPaper.pdf
The authors are Chang-Tai Hsieh and Enrico Moretti.
I thought about becoming a real estate agent in Bend, but according to a survey I read last year, real estate agents ranked Number One in the least respected vocation category. Used car sales people ranked Number Two.
I wonder where freelance writing was in that poll?