Comment No.: | REW-0406 | Received: | 10/25/2005 | Organization: | National Association of REALTORS | Commenter: | Yun, Lawrence | State: | CA | Attachments: | None |
Comments: Slide 1 Real Estate Brokerage Industry: Structure-Conduct-Performance Lawrence Yun, Ph.D., Senior Economist NATIONAL ASSOCIATION OF REALTORS® Presentation at the Federal Trade Commission Public Workshop October 25, 2005
Slide 2 Consumer Choice - For-Sale-By-Owner
- Discount brokerage
- Traditional brokerage
- Internet browsing free of charge
Slide 3 Perfectly Competitive Industry? - Many service providers
- 1.25 million REALTOR® members - 2.53 million real estate licensees - 98,000 active firms, 236,000 local offices - 1 million for-sale-by-owner sales - Low barriers to entry and exit into the profession
- 253,167 became new Realtor members, while 127,877 dropped Realtor membership in 2004 - Widely accessible information
- Web browsing, newspaper, yellow pages, mailings
Slide 4 Past Cycles - Recession in 1980s
- Home sales declined by 50% from 1979 to 1983
- REALTOR membership declined by 18% from 1981 to 1983
- Recession in 1990s
- Home sales declined by 14% from 1988 to 1991
- Membership declined by 12% from 1990 to 1995
- Recession in 2001 and 2002 Different
- 45-year low mortgage rates
- Record home sales
- Strong price increases
- Record membership
Slide 5 Existing-Home Sales 
[D] Source: NAR
Slide 6 Real Home Price Growth 
[D] Source: NAR
Slide 7 NAR Membership
 [D] Source: NAR
Slide 8 Concentration Ratio - Top 10 firms had 9.1% market share
- Top 20 firms had 10.9%
- Top 100 ... 17.0%
- Top 500 ... 26.6%
- Competition for clients
- Competition for agents
Source: Real Trends, 2004
Slide 9 Market Flexibility
Sales Force
| 1983 | 1990 | 1996 | 1999 | 1 to 5
| 51 | 55 | 51 | 60 | 6 -10
| 23 | 23 | 18 | 17 | 11 - 20
| 13 | 13 | 14 | 11 | 21 - 50
| 6 | 9 | 9 | 8 | 50 + | 3 | 4 | 4 | 4 |
- 2004: 96% of office had 10 or fewer agents
- Constant economies of scale
-Zumpano (2002) -Stigler Survivor Test
Slide 10 How can small firms survive? - MLS access puts everyone on equal footing
- Agents are independent contractors
- Person-to-person and case-by-case service requiring the highest level trust
- Legal advice - Estate planning advice - Tax advice
Slide 11 Perfectly Competitive Outcome? - Median REALTOR Income
- $52,000 in 2002 - $49,300 in 2004, working 45 hours per week - Is $52,0000 or $49,300 excessive or normal income? - Falling commission rates with more members
- 5.5% in 1998 to 5.1% in 2003 (REAL Trends) - Xyz% in 2005
- Free moving truck
- Closing cost assistance
- Commission rebates
Slide 12 Desirable Performance Measures - Economic mobility (proxied by home sales) one of the most dynamic in the world
- Historical experience of seeking a government bailout none bad times were self-correcting through exits
- Taxpayer risk none
- Social promotion of entrepreneurship and self-reliance yes
- Social promotion of women entrepreneurs yes
- Flexible work hours yes
- Work stoppage through labor strike none
- Data mining to price discriminate - none
- Subject to international regulatory jurisdiction - none
Slide 13 Multiple Listing Service - Purpose of MLS
- Facilitate home sales transaction - Available to all REALTOR members - $500 million investment to show homes 24/7 on Realtor.com - Not set up to solicit clients at the expense of existing brokers/agents - Public Utility? Consider to incentives to
- Stadium vendors - Shopping mall vendors - Pharmaceutical retail
Slide 14 When In Doubt, Trust
- Market outcomes wrought from free entry and exit
- Market not subjected to Profits in the Long Run
Robin Marris and Dennis Muellers managerial theories of the firm
- Private ownership (of MLS)
- Democratic process (for consumer protection)
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