Should realtors be required to multiple-list homes for sale?

 The WSJ has the story:

An Industry Dispute Threatens to Shake Up How Homes Are Listed for Sale. Some real-estate brokerages are pushing to repeal a National Association of Realtors rule governing how listings are marketed. By Nicole Friedman, Nov. 3, 2024

"The National Association of Realtors’ landmark settlement is changing the way homes are bought and sold. Now, another industry dispute threatens to shake up how homes are listed for sale. 

A rule implemented in 2020 requires most real-estate agents to add listings into local databases known as multiple-listing services within one business day of publicly advertising the listing. 

Advocates say the rule, known as the clear cooperation policy, makes the housing market more transparent by putting available homes in one place. The goal of the rule was to reduce the number of home listings that are shared privately with a select group of buyers or agents, known as pocket listings.

But opponents say the rule limits sellers’ options for how they can market their homes and puts brokerages at risk of lawsuits. The Justice Department’s antitrust division is investigating the policy, and a lawsuit against NAR regarding the rule is scheduled to go to trial in late 2025.

...

"The NAR rule currently allows listings to be kept off the MLS if they are only marketed within one brokerage, known as an “office exclusive.” That exception can benefit big brokerages, which have more potential buyers for those in-office listings. 

...

"In some markets, most Compass listings start out as office exclusives, Reffkin said in an August earnings call. 

“Those homeowners, they want to be able to test the market” before listing their homes more widely, he said. “The reason why private exclusives at Compass are so popular is because they do not have days on market [or] price drop history.”"

Real estate auctions

 Peter Cramton points me to this article in the Orange County Register, about a real estate auction with a soft close, that ran for several months.

How ‘soft’ auction added $33million to price for Orange County County icon By Jonathan Lansner

"The federal government’s exit from the eye-catching Chet Holifield Federal Building – better known as the “Ziggurat” – began June 5. The initial auction deadline for the building plus 89 acres in Laguna Niguel was July 31, but it came with a big “but” in the rules.

"You see, this auction run by the General Services Administration has a “soft close” – if the high price is topped in a 24-hour period, the auction is extended for another 24 hours.

"And on July 31 – and for every business day through Friday, Oct. 4 – that extra bidding threshold was met. 

"Consider the math of this curious auction technique: On July 31, the first deadline, the Ziggurat price tag was $136.8 million. The 46 added days of bidding increased that to $169.6 million as of Friday.

...

"Cramton wonders why auctions of any style aren’t more widely used to sell all sorts of residential housing nationwide. He sees them as fast and efficient ways to maximize pricing.

"Yet, auctions are typically used only to sell US homes with financially distressed ownership.

"“We don’t need thousands of real estate agents,” the professor says."

########

He further says: "There are 1.6 million real estate agents in the US and 434,661 in California (including brokers)."

##########

The WSJ has this story on real estate auctions:

"The Wealthy Are Overpricing Their Homes. Auctions Show Just How Much. Desperate to sell, more rich homeowners are turning to the auction market—but the results aren’t always what they bargained for.  By Katherine Clarke  and E.B. Solomont, Oct. 30, 2024 

"More closely associated with pricey art or collectibles, auctions are on the rise for luxury real estate, with auction houses reporting a dramatic spike in the number of high-net-worth sellers seeking their services since 2020. Amid a slowdown in luxury home sales, auction companies are pitching homeowners on their ability to market unique properties to a range of deep-pocketed buyers beyond local markets and to sell them within a precise time frame.

...

"Auctions tend to attract the real-estate world’s white elephants—properties that may be quirky, highly-personalized or ultraluxury, resort-style homes in neighborhoods where that type of housing is atypical.

...

"Whether there’s a reserve price or not, Concierge takes a 12% to 15% buyer’s premium as a commission, plus there are agent fees. It markets the property heavily before the auction, and tries to generate early offers by offering prospective buyers a “starting bid incentive,” or 50% discount on the buyer’s premium if they submit a winning bid before the start of the auction."

##########

Peter C. emails the following comment (since comments on the blog are closed):

"Real estate norms vary by country. In Norway and Australia, auctions are the norm. In the US, transactions are brokered, sometimes aided by an auction process. In all countries, residential and commercial real estate transactions would be improved with a better market design that emphasizes transparency and efficiency as goals in solving real estate's economic problems. Market design research on real estate is needed."

#####

*I enjoyed comments when I allowed them, but closed them because each morning I had to delete spam comments advertising bogus kidney purchases and sales...:(

How have real estate agents kept commissions high? More on steering, by Barry, Fried, and Hatfield,

 Here's a paper that offers one channel for how residential real estate commissions have been maintained at a more or less constant percentage of house prices, while those prices have risen and while information about houses for sale has become more readily available.

Barry, Jordan and Fried, Will and Hatfield, John William, Et Tu, Agent? Commission-Based Steering in Residential Real Estate (October 9, 2023). Available at SSRN: https://ssrn.com/abstract=4596391 or http://dx.doi.org/10.2139/ssrn.4596391

Abstract: "Real estate agents are required to serve their clients’ best interests. However, policymakers have long suspected that buyer agents steer their clients away from properties that offer low buyer agent commissions. They are particularly concerned that steering is a key reason why agent commissions have remained high in the internet era, even as commissions in other industries have plummeted. Analyzing a new dataset, we provide the first systematic, nationwide evidence that buyer agents do in fact steer clients away from properties that offer low buyer agent commissions.

"Buyer agents play an important role in helping their clients find homes. We hypothesize that buyer agents may skip over low-commission homes in favor of high-commission homes when choosing which listings to forward to their clients. If so, low-commission listings would tend to garner fewer page views on public real estate portals like Zillow and Redfin. To test this theory, we track the number of page views that individual listings receive on Redfin. All else being equal, we find that low-commission listings receive fewer page views. This effect is most pronounced for listings with the lowest commissions, but even listings with commissions that are slightly below the going rate receive significantly fewer page views.

"We also find evidence that this steering has meaningful economic consequences. Homes with lower buyer agent commissions take longer to sell and are less likely to sell at all. Again, these effects are largest for the listings with the lowest commissions, which take 33% longer to sell nationwide. In a typical geographic market, our best estimate is that these lowest-commission properties face a 75% greater risk of not selling at all. Here too, even commissions that are slightly below the going rate are associated with longer sale times and higher risk of a failed sale.

"We explore the implications of our findings with respect to both the $52 trillion U.S. housing market and the ongoing scholarly debates regarding agency costs and Collaborative Industries."

#########

Earlier:

Thursday, November 2, 2023

Jury Finds Realtors Conspired to Keep Commissions High

More on Realtor's contracts and practices, and the recent court decision

 Here are some further articles with some details about the recent court decision that real estate contracts are anticompetitive. Both are from the Washington Post:

Jury awards $1.8B in realty case that could shake up brokerage commissions. A Kansas City jury unanimously found that the National Association of Realtors and other organizations conspired to artificially inflate home sale commissions   By Julian Mark 

"The plaintiffs pointed to an NAR rule that required sellers to make a nonnegotiable commission offer before listing homes on the property database, the Multiple Listing Service, or MLS, which feeds widely used real estate sites including Zillow. That commission hovers around 5 to 6 percent of the sale price and is paid by the home seller to the sellers’ agent and the buyers’ agent. If sellers do not agree to the commission terms, they go virtually unseen in the market, Ketchmark said.

"The rule has stifled competition and has resulted in higher prices, the plaintiffs alleged. They argued that if the rule were not in place, buyers would pay commissions to their own agents while buyers’ agents would have to compete by offering lower rates. The lawsuit pointed to countries whose total real estate commissions average 1 to 3 percent, such as the United Kingdom, Singapore, the Netherlands, Australia and Belgium.

########

Real estate industry trembles over commissions on home sales. After jurors recently found that there was a scheme to inflate commissions, experts say changes could shake up the business  By Julian Mark

"The judge overseeing the case has the power to issue an injunction that could break up the century-old “bundled” or “cooperative” commissions system, in which sellers’ and buyers’ agents split a commission that typically ranges between 5 and 6 percent of the home sale price. 

...

"The cooperative compensation structure was established in 1913, when National Association of Real Estate Exchanges, the precursor to NAR, said its member agents should share commissions with agents that produced buyers, according to a 2015 study by economists Panle Jia Barwick and Maisy Wong. The commissions rate hit 5 percent in 1940 and has remained virtually unchanged ever since, according to the study.

"Commissions work differently in countries such as the United Kingdom, where sellers pay typically less than 2 percent, and buyers pay their own agents, according to the study."

######

And here's the cited paper:

Barwick, Panle Jia, Parag A. Pathak, and Maisy Wong. 2017. "Conflicts of Interest and Steering in Residential Brokerage." American Economic Journal: Applied Economics, 9 (3): 191-222.

Abstract: This paper documents uniformity in real estate commission rates offered to buyers' agents using 653,475 residential listings in eastern Massachusetts from 1998–2011. Properties listed with lower commission rates experience less favorable transaction outcomes: they are 5 percent less likely to sell and take 12 percent longer to sell. These adverse outcomes reflect decreased willingness of buyers' agents to intermediate low commission properties (steering), rather than heterogeneous seller preferences or reduced effort of listing agents. Offices with large market shares purchase a disproportionately small fraction of low commission properties. The negative outcomes for low commissions provide empirical support for regulatory concerns over steering.

Jury Finds Realtors Conspired to Keep Commissions High

 One of the puzzles of the internet age, when you can take house tours remotely, and see house listings online, is how real estate agents have managed to keep their dominant position in the residential real estate market, including commissions that have remained roughly constant as a percentage of sale price, as sale prices have risen.  There's certainly room for economists to investigate the contract forms that are widespread in the industry.

In the meantime, the WSJ has the story from the legal front:

Jury Finds Realtors Conspired to Keep Commissions High. The National Association of Realtors and big residential brokerages were found liable for about $1.8 billion in damages  By Laura Kusisto, Nicole Friedman, and Shannon Najmabadi

"A federal jury on Tuesday found the National Association of Realtors and large residential brokerages liable for about $1.8 billion in damages after determining they conspired to keep commissions for home sales artificially high.

The verdict could lead to industrywide upheaval by changing decades-old rules that have helped lock in commission rates even as home prices have skyrocketed—which has allowed real-estate agents to collect ever-larger sums. It comes in the first of two antitrust lawsuits arguing that unlawful industry practices have left consumers unable to lower their costs even though internet-era innovations have allowed many buyers to find homes themselves online.

Announced in a packed Kansas City, Mo., courtroom, the verdict came after just a few hours of jury deliberations. The case was brought by home sellers in several Midwestern states."

Brothels reduce neighboring house prices in Amsterdam

 There are many reasons why communities object to prostitution, and it will not surprise you to learn that it reduces house prices in its immediate neighborhood.  Here's a  study that takes advantage of the closing of some brothels in Amsterdam:

Giambona, Erasmo, and Rafael P. Ribas. "Unveiling the Price of Obscenity: Evidence from Closing Prostitution Windows in Amsterdam." Journal of Policy Analysis and Management (2022).

Abstract: "Does legitimating sinful activities have a cost? This paper examines the relationship between housing demand and overt prostitution in Amsterdam. In our empirical design, we exploit the spatial discontinuity in the location of brothel windows created by canals, combined with a policy that forcibly closed some of the windows near these canals. To pin down their effect on housing prices, we apply a difference-in-discontinuity (DiD) estimator, which controls for the precise location of brothel windows and the effect of other policies and local developments. Our results show that the housing prices are discontinuous at the bordering canals, and this discontinuity nearly disappears after closures. The discontinuity is also found to decrease with the distance to brothels, disappearing after 300 yards. Our estimates indicate that homes right next to sex workers were 30 percent cheaper before the closures. This result seems unrelated to the presence of other businesses, such as bars and cannabis shops. Instead, the price discount is partly explained by petty crimes. However, 73 percent of the effect remains unexplained after controlling for many forms of crime and risk perception. Our findings suggest that households tend to be against the visible presence of sex workers and related nuisances, reaffirming their marginalization."

And here's the concluding paragraph:

"Overall, the legalization of prostitution can have social and economic benefits. However, our work suggests that even in a city where prostitution has been tolerated for centuries and is currently legalized, residents avoid living near brothels. This aversion results in sizable property value losses. The takeaway for policymakers is that social norms and related nuisances influence the marginalization of sex workers beyond any regulations attempting to legitimize their status."

A beachfront lot for you in the metaverse--or maybe an experimental lab

 With Facebook transforming itself into Meta, we're starting to hear a lot about the metaverse, a term that may have been coined by Neal Stephenson in the novel Snowcrash.

Scott Kominers, who recently signed on to an Andreessen Horowitz ("a16z" for short) expedition to the metaverse, offers this view of why you might want to set up shop there yourself sometime:

Metaverse Land: What Makes Digital Real Estate Valuable by Scott Duke Kominers

 Reading it, I realized that I had something of an early metaverse experience, involving an experiment in May 2008 in Second Life, eventually memorialized in a paper in a special issue of JEBO in honor of Werner Güth:

Greiner, Ben, Mary Caravella, and Alvin E. Roth. "Is avatar-to-avatar communication as effective as face-to-face communication? An Ultimatum Game experiment in First and Second Life." Journal of Economic Behavior & Organization 108 (2014): 374-382. 

We needed a metaverse laboratory in Second Life, and in order for us to be able to control communication between subjects, they each had to be teleported to a room more than a mile distant from anyone else (so that they would be beyond the range of Second Life chat tools). So our lab was an unusual bit of metaverse real estate: a tower of laboratory rooms floating above our island, each a mile above the room below it. (Construction in the metaverse is more flexible than in the physical universe.) Here's the description from the paper:

"Within Second Life, the sessions took place on an “island” under our control. We restricted access to the island to those participants’ avatars who had signed up to the session. Participants were received in a virtual laboratory building, the interior of which closely resembled the CLER layout (see screenshot 1 in Appendix B). They received a Linden$400 showup-fee, plus their income from the Ultimatum Game. At the beginning, participants received general instructions and were randomly matched to pairs and roles. In the no-communication treatment SL-NC, participants were teleported to private “decision rooms” (distant enough from each other to prevent any chat communication) and made their choices. In the avatar-to-avatar communication treatment SL-A2A, participants were first teleported in pairs to “discussion rooms” (see screenshot 2 in Appendix B) where they were free to discuss any topic for 5 min, before being teleported to their private decision room. In their decision room, participants received instructions on the Ultimatum Game. Decisions were made on an interactive wall in the decision room, which resembled the zTree input mask used in the laboratory sessions (see screenshot 3 in Appendix B). After all decisions were made, participants were informed of their payoffs and paid in Linden$ via the Second Life money transfer mechanism."

Realtors still have a few tricks up their sleeves--"Whisper listings"

 It once looked as if the growth of the internet, and increased access to home listing databases, would substantially weaken the grip of licensed Realtors on the residential housing market in the U.S. Those predictions proved premature: Realtors have kept a very large market share, while earning high fees as prices rise (based on a percentage of the sales price).  

The WSJ has part of the ongoing story:

In Tight Housing Market, Thousands of Homes Are Reserved for Certain Buyers. ‘Whisper listings,’ made directly to select customers, are growing at a time when housing inventory is near record lows  By Nicole Friedman

"In the vast majority of transactions, an agent lists a home for sale on a local database and markets the property widely to drum up interest and get the best price. But in certain cases, a broker will show an unlisted property to a small circle of potential buyers more exclusively, often in hope of getting a deal done quickly.

"These private sales are known as pocket listings, or whisper listings. They have been around for many years. But they are on the rise now even though the National Association of Realtors adopted a rule last year aimed at discouraging their use following complaints from some of its members.

"The new NAR policy requires agents to add listings to their local database within a business day of publicly advertising the listing. But there is a notable exemption: Listings can still be kept off the database if they are only shared within one brokerage, called an “office exclusive.”

Pandemic inspired changes in the economy that may last--real estate and medicine

 In academia, Zoom seminars may coexist with in-person seminars long after the pandemic has ended. They aren't as nice as in-person seminars, but they involve much less air travel.

Business meetings too can more easily be conducted remotely these days, through Zoom, Google Meet, Microsoft Teams, etc. Once again, there's something missing compared to in person meetings, but that's counterbalanced by the skipped travel.

Exercise has changed--fewer visits to the gym, but internet companies like Peloton and Mirror combine home gym equipment with workouts in internet gym classes.

Here are some other items that have caught my eye:

Real Estate Transactions Go Virtual--The traditional real estate closings with a room full of people and stacks of documents are becoming a memory, as much of the process is now online.  By Sydney Franklin in the NY Times

"Real estate transactions have gone largely digital as the pandemic has disrupted nearly every aspect of home buying, from house hunting to securing a mortgage, getting an appraisal, notarizing documents and signing the final closing documents.

...

"While some clients continue to prefer in-person closings, others are giving their lawyers power of attorney to sign the final documents for them or they’re executing closings on virtual platforms like DocuSign.

...

"By the time New York’s real estate market reopened in June after several months of coronavirus restrictions, most buyers were prioritizing virtual tours before reaching out for an in-person visit.

...

"Since March 31, an executive order by Gov. Andrew M. Cuomo has allowed notaries in New York to sign documents using audio-video technology instead of signing and notarizing documents in person.

"Dawn Pereyo, an underwriter and past president of the New York State Land Title Association, says this work flow is the way of the future. Twenty-nine states, not including New York, have already enacted permanent remote online notarization (RON) legislation. “The executive order has allowed us to start down the road of RON,” she said.

****************

And this:

20 Ways 2020 Changed How We Use Technology Forever--Our reliance on technology while isolated at home these past months—whether Zooming into weddings or FaceTiming with doctors—has permanently altered our relationship to gadgets.   By Matthew Kitchen in the WSJ

"telemedicine and teletherapy visits became the norm. According to a survey by the American Psychiatric Association, the percentage of patients regularly using some form of telehealth with a professional rose from 2.1% pre-pandemic to more than 84.7% as of this summer."

Residential real estate sales, social distancing, and traditional marketplace institutions

In some places, residential real estate is an essential service (open houses allowed) and in others not.  Virtual, internet showings are becoming more important.
But some of the particular marketplace institutions, of closing and title ceremonies (including notarized signatures) resist social distancing, and in many U.S. states must be conducted in person. Of course, the security of undisputed ownership is of huge importance in real estate, and online security is imperfect (I'm told...), so it isn't clear how to proceed here.

Here's a story from the Washington Post:

With hand sanitizer and elbow bumps, real estate agents are still selling during pandemic
By Kathy Orton

"Now, as nonessential businesses are shuttering to wait out the pandemic, some real estate professionals are carrying on as usual — albeit with masks, gloves and hand sanitizer. Agents were holding open houses until they were prohibited by local officials. Nearly 200 open houses were listed last weekend and more than 600 open houses the week before in the D.C. region on the area’s multiple listing service. Mayor Muriel E. Bower (D) banned open houses as of Saturday; Maryland Gov. Larry Hogan (R) and Virginia Gov. Ralph Northam (D) forbid them as of Monday.

"Home appraisers and inspectors are donning masks and gloves. Settlement companies are putting buyers and sellers in separate conference rooms and opening a new box of pens for each client who comes to a closing.
...
"Illinois, despite being hit hard by the coronavirus outbreak, has said that real estate is an essential service, and therefore is not required to close like retail outlets and restaurants.

"But California, New York and Pennsylvania have said it is not. Seattle’s multiple listing service no longer allows agents to post open houses.
...
"The number of 3-D home tours created on Zillow went up 326 percent on March 20.
...
"Although many aspects of buying a home can be done online, certain parts of the process — inspection, appraisal, closing — typically are done in person.
...
"According to Todd Ewing, chief executive at Federal Title, Fannie Mae and Freddie Mac are reluctant to buy loans without legislation that allows for remote online notarization.

"Some states, including Virginia, permit remote online notarization, but others such as the District and Maryland, do not. Federal legislation was introduced on March 18 that would allow it in all states."

Real estate symposium

I participate today in a conference on an unusual (for me) subject:

SPIRE AND THE REAL PROPERTY LAW SECTION HOST
THE FIFTH ANNUAL REAL SYMPOSIUM

---

Fifth Annual Real Estate and Law Symposium Tuesday, February 16, 2016 1 p.m. - 5:30 p.m. 555 Salvatierra Walk Paul Brest Hall (Law School) Stanford University Earn 2.5 hours of MCLE credit.  Keynote Speakers: Angela Kleiman, CFO and Executive Vice President, Essex Property Trust, Inc. Alvin Roth, Nobel Laureate, Economic Sciences; Professor of Economics, Stanford University Panel topics include: Space on Demand Risk and Resiliency in Financial and Real Estate Markets Early Bird Pricing: SPIRE/RPLS Members: $125 Non-Members: $175 Young Professionals:  $95

About the REAL Symposium Program Schedule and Speakers  Sponsors Essential Information About SPIRE About the Real Property Law SectionDirections

Stanford Professionals  In Real Estate (SPIRE) http://www.spirestanford.org

The Real Property Law Section of The State Bar of California

About the Real Estate and Law (REAL) Symposium

The 2016 REAL Symposium will cover several legal topics such as the legal implications of the evolving use and management real estate in the new sharing economy in the areas of land use, financing, enforcement of existing regulations, and the potential for litigation.  New financing products and trends in the real estate financing markets will be discussed as well as legal issues facing transactional and financing lawyers.In addition, the lead deal maker for the largest West Coast multi-family REIT will give an inside look at the largest merger in recent history and its implications on future transactions.

Program Schedule and Speakers

Event	Time
Registration	12 noon - 1 p.m.
Welcoming Remarks	1 p.m. - 1:15 p.m.
Featured Panel 1: Space On Demand Tech innovations and the new sharing economy are changing how we work, travel and play. We are increasingly demanding accessible, fluid and fungible physical space. However, there are significant legal and financial ramifications to creating space on demand. This panel will discuss a variety of topics related to the sharing economy. Moderator: Curtis Smolar,  Partner, Browne George Ross LLP                                               Panelists: Scott Weiner, San Francisco Board of Supervisors Diana Rothschild, CEO & President, NextSpace Deborah Boyer, Executive VP & Director of Asset Management, The Swig Company Fourth panelist to be announced	1:15 p.m. - 2:20 p.m.
Keynote Speaker: Alvin Roth Nobel Laureate 2012, Economic Sciences; Professor of Economics, Stanford University Professor Roth has made significant contributions to the fields of game theory, market design, and market matching, and is known for his emphasis on applying economic theory to “real-world” problems. Under the theory of stable allocations and the practice of market design, he uses mathematical algorithms to assign people or things to stable matches. Professor Roth’s work, which spans decades, culminated in him being awarded a Nobel Memorial Prize in Economic Science. Professor Roth is currently the Craig and Susan McCaw Professor of Economics at Stanford University and he is the George Gund Professor of Economics and Business Administration Emeritus at Harvard University. Professor Roth received his bachelor’s degree from Columbia University and his master’s and doctorate from Stanford University.	2:20 p.m. - 2:55 p.m.
Break	3 p.m. - 3:20 p.m.
Keynote Speaker: Angela Kleiman Essex Property Trust, Chief Financial Officer and Executive Vice President Essex Property Trust, Inc. is a fully integrated REIT that acquires, develops, redevelops, and manages apartment communities located in highly desirable, supply-constrained markets.  Ms. Kleiman led the overall transaction management of Essex’s merger with BRE Properties at the end of last year, creating the largest West Coast multi-family REIT. Ms. Kleiman oversees the Private Equity, Capital Markets, Economic Research, Accounting, Financial Planning and Investor Relations departments. She joined Essex in 2009 to manage the company’s Private Equity Platform and grew it to $3 billion in gross assets. Prior to joining Essex, Ms. Kleiman served as Senior Equity Analyst and Vice President at Security Capital and as Vice President with J. P. Morgan Real Estate and Lodging Investment Banking Group. Ms. Kleiman received her Bachelor’s from Northwestern University and her MBA from Northwestern University’s Kellogg School of Management.	3:20 p.m. - 3:50 p.m.
Featured Panel 2:  Risk and Resiliency in Financial and Real Estate Markets The US economy has rebounded from the real estate and market crashes in 2007 and there continues to be abundant opportunity for real estate investors, developers and entrepreneurs.   At the same time real estate professionals are faced with new and not-so-new challenges in the rapidly changing real estate/financial industries and world economies.   This panel will discuss how real estate entrepreneurs, investors and financiers identify and manage opportunity and risk in the evolving economy. Moderator: Jeff Weber, Senior Managing Director, Eastdil Secured Panelists: Bill Hosler, COO, Catellus Mark Myers, Executive VP & Group Head of Commercial Real Estate, Wells Fargo Sam Hooker, Principal, Embarcadero Partners LLC

Interview about market design by the National Association of Real Estate Investment Trusts

An interview about market design by the National Association of Real Estate Investment Trusts inevitably turned to the real estate market...

Nobel Prize Winner Alvin Roth Plays the Match Game  By Allen Kenney

Here's the final question and answer:

REIT: What about on a more discrete level? If you’re an executive in the real estate industry, for example, how might you know if you could get better results by changing how you engage in your own micro-markets for deals?

Roth: I’m a sometimes observer and participant in the residential real estate market. The large role still played by realtors is surprising to me as prices and searchability have gone up.

There was a time when the multiple listing service was a monopoly that made it hard to know what houses were on the market if you didn’t engage a realtor. Nowadays, it’s much easier to know what houses are on the market. You can even take virtual tours.

Still, realtors’ commissions have remained steadily at high rates around the country, even as prices have gone up. Of course, there’s more competition among realtors, so it’s not necessarily the case that realtors are all getting rich. But I’m surprised by the high commissions that are still extracted in cases when it’s not clear to me that the realtors are providing a big service.

If commercial real estate is similar, there might be ways to arrange more bilateral transactions. There might be ways to sell without so much assistance from realtors.

The real estate broker cartel is tough in India

Here's a report of real estate brokers in India roughing up the employees of a company that seeks to help buyers and sellers manage without realtors:
Sign of things to come? Property brokers rough up NoBroker.in CEO and employees
Property brokers in Bengaluru resorted to physical assault to shut NoBroker.in.

"Bengaluru-based online real estate startup NoBroker.in claimed that its office was “attacked” by local agents and brokers on Tuesday. As the name suggests, the startup helps customers to save money paid as brokerage, something which would worry traditional property brokers."

HT: Sangram Kadam

How are Realtors maintaining their cartel (even) in the internet age?

A new NBER paper sheds some light on Realtors...

Conflicts of Interest and the Realtor Commission Puzzle

Panle Jia Barwick, Parag A. Pathak, Maisy Wong

NBER Working Paper No. 21489
Issued in August 2015

This paper documents uniformity in real estate commission rates across markets and time using a dataset on realtor commissions for 653,475 residential listings in eastern Massachusetts from 1998-2011. Newly established real estate brokerage offices charging low commissions grow more slowly than comparable entrants with higher commissions. Properties listed with lower commission rates experience less favorable transaction outcomes: they are 5% less likely to sell and take 12% longer to sell. These adverse outcomes reflect decreased willingness of buyers' agents to intermediate low commission properties (steering) rather than heterogeneous seller preferences or reduced effort of listing agents. While all agents and offices prefer properties with high commissions, firms and agents with large market shares purchase a disproportionately small fraction of low commission properties. The negative outcomes for low commissions provide empirical support for regulatory concerns that steering reinforces the uniformity of commissions.

The market for air space in Manhattan

The real estate market in Manhattan doesn't just scrape the sky, it hovers over shorter buildings too: The Great Air Race

"Air rights are, in actuality, not fluffy chunks of available or orphaned air. They are unused or excess development rights gauged, like building density or lot size, by the square foot and transferable, when zoning permits it, from one buildable lot to another. They have become the reigning currency of the redevelopment realm, major components in the radical vertical transformation of the city’s skyline.

"These days developers don’t just tailor their blueprints to the lot they own: they often annex, for fees that can run into the multimillions, the airspace above and around their property. The process, essentially an invisible merger of building lots that tranlates into taller, heftier towers with increased profitability, is emerging from a minislump dictated by the economy.

  “The trading of air rights is more prevalent than it’s ever been before,” said Robert Von Ancken, an air-rights expert and appraiser who is the chairman of Landauer Valuation and Advisory Services, “and it’s why you’re seeing these monster buildings springing up all over town. All of these new supertowers that are changing the look of the city’s horizon, they couldn’t happen without air-rights transfers.”

"Mr. Von Ancken estimates that air rights trade for 50 to 60 percent of what the earth beneath them would sell for. "

The internet and the market for summer rental housing

Along with all the first order effects of the internet, it has had big effects on small markets, like secondhand books and, it turns out, vacation rentals: The Summer Rental Rat Race.

"as more vacation-home owners have entered the rental business, with help from a growing collection of Web sites that make it easy to post listings, the competition to attract tenants has become fierce.

"“Real estate agents who want to sell you a house will tell you that you can make money off it,” Mr. Johnston said. “Well, I did 20 years ago, but I don’t anymore.”

"There is often money to be made in vacation homes, but as the number of listing services has increased, so have the number of properties posted for rent. For example, HomeAway.com, one of the most popular sites, says it has more than 300,000 rentals worldwide.

"Numbers like that are forcing casual landlords to learn how to make their homes appear higher in search results, to track prices by monitoring their neighbors’ listings, and to deal with customer-service headaches like a negative Yelp-style review from renters.
...
"HomeAway listed 304 homes for rent in the Catskills in 2008; now it has roughly 520 homes available. Along the Jersey Shore over the same time frame, listings increased to 2,200 from about 700; in the Hamptons they jumped to 750 from 270.
...
"HomeAway owns another popular Web site, VRBO, which stands for “vacation rentals by owner.” But at these and other HomeAway sites, homes posted by professional property managers now account for 27 percent of the listings.
...
“We see that as a net benefit for our travelers,” said Jon Gray, HomeAway’s vice president for North America. “It gives more choice to them.”
...
"It also creates more competition for individual homeowners, who themselves have more rental listing services to choose from. The options include global players like HomeAway and FlipKey, which is owned by TripAdvisor, and specialized sites like Gite.com, which lists holiday homes in France."

Real estate agents as middlemen

A new NBER paper examines real estate agents in Boston:
The Costs of Free Entry: An Empirical Study of Real Estate Agents in Greater Boston,
by Panle Jia Barwick and Parag A. Pathak

Abstract: This paper studies the real estate brokerage industry in Greater Boston, an industry with low entry barriers and substantial turnover. Using a comprehensive dataset of agents and transactions from 1998-2007, we find that entry does not increase sales probabilities or reduce the time it takes for properties to sell, decreases the market share of experienced agents, and leads to a reduction in average service quality. These empirical patterns motivate an econometric model of the dynamic optimizing behavior of agents that serves as the foundation for simulating counterfactual market structures. A one-half reduction in the commission rate leads to a 73% increase in the number of houses each agent sells and benefits consumers by about $2 billion. House price appreciation in the first half of the 2000s accounts for 24% of overall entry and a 31% decline in the number of houses sold by each agent. Low cost programs that provide information about past agent performance have the potential to increase overall productivity and generate significant social savings.

Online real estate markets: Yahoo and Zillow

Yahoo Pairs with Zillow on Real Estate Listings

"The deal also helps Yahoo and Zillow challenge Move Inc. (MOVE), owner of Realtor.com, the most-used real estate site."
...
"Until now, Yahoo has focused mainly on selling ads from large marketers, such as mortgage companies and credit agencies, not the local real estate agents that are Zillow's mainstay, Schultz said. In May, Yahoo was No. 3 in the online real estate market with 6.14 million users, while Zillow.com was second with 7.05 million, according to ComScore (SCOR) of Reston, Va. The market was led by Move Inc., with more than 12 million."

Mortgages, "strategic default," and repugnance

Steve Leider writes:
I’ve noticed lately that a lot of people (both public intellectuals like Megan McCardle and Rod Dreher as well as [other people I know]) seem to be really affronted at stories of people who walk away from mortgages that they can afford the payments on for houses that are under water (“strategic defaults”). Everybody seems to feel that even though this option is legal under the mortgage contract that this is somehow dishonorable or immoral. It’s a bit different from repugnance because while both parties voluntarily agreed to the contractual rules that allow this at the start, the bank probably isn’t happy about it now – but it has something of the same flavor of deep emotional disapproval of the economic activities of others.

http://meganmcardle.theatlantic.com/archives/2009/12/the_new_breed_of_deadbeats.php
http://blog.beliefnet.com/roddreher/2010/01/mortaging-ones-personal-honor.html

But see also Roger Lowenstein in the NY Times: Walk Away From Your Mortgage!
Update: see also Dick Thaler: Underwater, but Will They Leave the Pool?

Real estate; disaggregating a bundle of services

There are cracks beginning to show in the way real estate is sold. For a long time, the only realistic option for selling a home was to employ a full service realtor, who sells a whole package of services bundled together, and charges five or six percent of the selling price of the house.

But as the internet has eroded the Multiple Listing Service monopoly on home listings, it is beginning to be possible for sellers to put their own homes on the market, with the assistance of a la carte services from realtors.

One such service in the Boston area, http://eplacehomes.com/ offers just such an a la carte "menu of services". It will be interesting to see where this leads, in a market whose standard, full service contract, with a 6% realtor's commission, became strained as house prices rose into seven figures in many communities. (See this earlier post on broker rebates to buyers.)