REW Public Comment : National Association of REALTORS (Yun, Lawrence) 10/25/2005, REW-0406

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
 

• 2004: 96% of office had 10 or fewer agents
• Constant economies of scale
  • -Zumpano (2002)
    -Stigler Survivor Test
  
  
  
  
   
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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
  
  
  
  
   
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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 Mueller’s managerial theories of the firm
• Private ownership (of MLS)
• Democratic process (for consumer protection)