Real Estate Reality Check


Posted by Bruno on August 29th, 2005

Great article in Slate this morning on Real Estate agents and economics. Ever wonder how it is that Realtor comissions have stayed at 6 percent while the number of realtors grows each year? Me too. You’d think some smart realtor would offer 5 percent and make a hefty profit as a discounter. Turns out that they’re still getting their 6 percent, they’re just selling fewer and fewer homes:

A recently published study bears this out. Enrico Moretti and Chiang-Tai Hsieh of the University of California, Berkeley, studied the real-estate agent business in 282 metropolitan areas during a 10-year period. They compared agents in inflated markets to agents in flat-lining markets and found overwhelming evidence of the zero-profit condition in action. When housing prices rose, the number of agents did as well, and this, in turn, reduced the number of houses each agent sold by almost exactly the same proportion as the price increase. In Moretti and Hsiesh’s data, for example, houses cost 5.9 times more on average in San Francisco than they do in Steubenville, Ohio. But the average full-time agent working in Steubenville sells more than 22 houses per year, whereas the same agent in San Francisco sells less than one-fifth as much.

I guess this works out pretty well for everyone. Instead of entering the market and having to hustle and discount to sell a lot of homes for little commission, newbie realtors just have to hang back and wait for their one or two sales. Same money, less paperwork.


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