REW Public Comment : University of California, Berkeley (Hsieh, Chang-Tai) 10/25/2005, REW-0403
Comment No.: | REW-0403 |
Received: | 10/25/2005 |
Organization: | University of California, Berkeley |
Commenter: | Hsieh, Chang-Tai |
State: | CA |
Attachments: |
Comments:
The Tragedy of the Commission
Chang-Tai Hsieh University of California, Berkeley
- Fixed 5-6 percent commission
- =>Commission increases one-to-one with price of house.
=> Highly unlikely that time spent on selling houses increases one-to-one with price.
- =>Commission increases one-to-one with price of house.
Boston and Minneapolis in 1990
- Cost of housing:
- - Boston: $200,000
- Minneapolis: $100,000
- - Boston: $200,000
- Productivity of average real-estate agent:
- - Boston: 3.3 houses/agent
- Minneapolis: 6.6 houses/agent
- - Boston: 3.3 houses/agent
Boston and Minneapolis in 1980
- Productivity of average real-estate agent:
- - Boston: 6 houses/agent
- Minneapolis: 7 houses/agent
- - Boston: 6 houses/agent
- Cost of housing
- - Boston: $100,000
- Minneapolis: $100,000
- - Boston: $100,000
- The tragedy of the commission
- - Real-estate agents in Boston are no better off
Empirical Evidence:
- 282 Metropolitan areas
- In cities where housing prices have increased:
- More real-estate agents
- Lower productivity (sales per agent)
-
Real wages are the same
What do real-estate agents do?
- door to door canvassing
- cold calling
- notepads with realtor's picture
- calling on FSBOs
- servicing a "farm"
- free pumpkins
- Matching buyers and sellers
- Prospecting
- Prospecting is of marginal social value
- Fraction of time spent on prospecting increases with number of other real-estate agents.
Do realtors in high cost cities provide higher "quality" service?
- - We compare the same cities over time.
- Use only differences in housing costs due to price of land.
- Direct measures of time spent by agents on "useful" activities.
- Time spent by realtors selling houses
- Time spent by realtors assisting buyers
How Much is the Social Waste?
- Total Earnings in 1990: $16 billion
- Benchmark City is Athens, GA
- Waste is $8.2 billion
The Tragedy of the Commission
- - Price protection ultimately does not benefit price protectors.