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."

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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.

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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."

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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.

Misunderstandings: False Beliefs in Communication by Georg Weizsäcker

 Georg Weizsäcker  has a new book, just out from Open Book Publishers. You can read online or download it for free, or purchase a printed copy.

Misunderstandings: False Beliefs in Communication, by Georg Weizsäcker 

"What do we expect when we say something to someone, and what do they expect when they hear it? When is a conversation successful? The book considers a wide set of two-person conversations, and a bit of game theory, to show how conversational statements and their interpretations are governed by beliefs. Thinking about beliefs is suitable for communication analysis because beliefs are well-defined and measurable, allowing to differentiate between successful understandings and their less successful counterparts: misunderstandings.

"The book describes the theoretical framework and empirical measurements of misunderstandings – written by an economist, but in simple words and using interdisciplinary concepts. The material will benefit students and researchers of behavioural economics and its neighbouring fields, and anyone interested in human language."

Among the endorsements:

"The most Zen part of economics has to do with how people form beliefs about the beliefs of others. Georg Weizsäcker is a Zen master at explaining the origins of misunderstandings, particularly those arising from false beliefs about the beliefs of others.

Prof. Alvin E. Roth, Stanford University"

Graduate hotels, and campus humor

 I've been spending some time at Berkeley this quarter, and have twice stayed at the Graduate Hotel adjacent to the campus, Graduate Berkeley.  The Graduate chain  of hotels has a business model in which they purchase an old hotel (in Berkeley it was the Durant), and update it in various ways. (As far as I can tell, every room has a poster from the movie The Graduate.)  They also feel free to take swipes at neighboring universities: a restroom off the lobby of the Berkeley hotel  includes some Stanford signage.

I notice that a Graduate hotel has recently opened in Palo Alto, near Stanford.  I'll have to stop there for a drink sometime.

Kidney Exchange: Within and Across Borders (video lecture).

 Below is a video of my 40 minute talk at Berkeley on Monday, on Kidney Exchange: Within and Across Borders, at the final workshop on Mathematics and Computer Science of Market and Mechanism Design,  at the Simons Laufer Mathematical Sciences Institute (SLMath). (But we warned or reassured, this isn't a mathematical lecture...)

Here's another link to the video if you have trouble connecting:  https://www.slmath.org/workshops/1082/schedules/34227

Algorithms, Approximation, and Learning in Market and Mechanism Design at SLMath Berkeley this week--Thursday

 Thursday's program (last day)

 09:00 am - 09:45 am

Stability and Learning in Strategic Games

Eva Tardos, Cornell University

 09:45 am - 10:30 am

Statistical Contract Theory

Michael Jordan, University of California, Berkeley

 10:00 am - 10:30 am

Break

 11:00 am - 11:45 am

Learning Bayes-Nash Equilibria in Auctions and Contests

Martin Bichler, Technical University of Munich

 11:30 am - 11:45 am

Break

 11:45 am - 12:30 pm

Recent Advances in Computing Nash Equilibria in Markov Games

Ioannis Panageas, University of California, Irvine

 12:30 pm - 02:30 pm

Lunch

 02:30 pm - 03:15 pm

Learning in Games and Markets: Talk 5

Tuomas Sandholm, Carnegie Mellon University

 03:15 pm - 03:45 pm

Afternoon Tea

 03:45 pm - 05:00 pm

Learning in Games and Markets: Closing Panel

Algorithms, Approximation, and Learning in Market and Mechanism Design at SLMath Berkeley this week--Wednesday

 Wednesday's program

 09:00 am - 09:45 am

Dual Reduction and Elementary Games with Senders and Receivers

Roger Myerson, University of Chicago

 09:45 am - 10:30 am

Algorithmic Mechanism Design: Talk 5

Michal Feldman, Tel-Aviv University

 10:30 am - 11:00 am

Break

 11:00 am - 11:45 am

Simple Mechanisms for Non-linear Agents

Jason Hartline, Northwestern University

 11:45 am - 12:30 pm

Mechanism design for humans

Sigal Oren, Ben Gurion University of the Negev

 12:30 pm - 02:30 pm

Lunch

 02:30 pm - 03:15 pm

Cost Based Nonlinear Pricing

Dirk Bergemann, Yale University

 03:15 pm - 03:45 pm

Break

 03:45 pm - 05:00 pm

Algorithmic Mechanism Design: Closing Panel

Algorithms, Approximation, and Learning in Market and Mechanism Design at SLMath Berkeley this week--Tuesday

 Here's Tuesday's program

 09:00 am - 09:45 am

Walrasian Mechanisms for Non-Convex Economies and the Bound-Form First Welfare Theorem

Paul Milgrom, Stanford University

 09:45 am - 10:30 am

The Languages of Product-Mix Auctions

Elizabeth Baldwin, University of Oxford

 10:30 am - 11:00 am

Break

 11:00 am - 11:45 am

Workably Competitive Electricity Markets: Practice and Theory

Shmuel Oren, UC Berkeley

 11:45 am - 12:30 pm

(Near) Substitute Preferences and Equilibria with Indivisibilities

Rakesh Vohra, University of Pennsylvania

 12:30 pm - 02:30 pm

Poster Sessions and Lunch

 02:30 pm - 03:15 pm

Beyond Classical Fisher Markets: Nonconvexities and Online Allocations

Yinyu Ye, Stanford University

 03:15 pm - 03:45 pm

Afternoon Tea

 03:45 pm - 05:00 pm

Non-Convex Auction Markets: Closing Panel

 05:00 pm - 06:20 pm

Reception