2006 September 04 Monday
Real Estate Commissions Under Pressure From Internet

The internet ought to reduce the labor and cost involved in buying and selling homes. But the real estate industry fights to protect the 6% commission.

The Justice Department and the Federal Trade Commission have fought these tactics in Texas, Kentucky, Tennessee and Oklahoma, among other states, and the department is suing the National Association of Realtors, the powerful trade group of agents and brokers, over what it calls anticompetitive rules.

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Some economists wonder why agents fight so hard to maintain this pricing system when it is making so few of them rich. In every housing boom, the number of new agents entering the market tracks the climb in home prices. As a result, the average agent sells far fewer homes and makes less money. On average, agents earn $49,300 a year, according to the National Association of Realtors, and that is before paying for their own health insurance and retirement benefits.

“It’s a case where nobody wins,” Chang-Tai Hsieh, an associate professor of economics at the University of California, Berkeley, said of the current system. Mr. Hsieh, who has studied real estate commissions, said that they did not vary much from 6 percent and did not generally change in good times or bad. He said it was a form of price fixing, but an odd one. “Consumers pay a lot of money, and even the people who do the price fixing don’t win,” he said. “So it is a colossal waste.”

Realtors spend most of their time trying to get and keep listings. Therefore real estate sales is a colossal waste of labor. When sales and prices rise more people become realtors and so more labor is wasted by too many realtors chasing too few listings. An end to the price fixing would reduce the cost of home selling and also drive a lot of people out of real estate sales into more productive forms of work.

Share |      By Randall Parker at 2006 September 04 06:21 AM  Economics Industry


Comments
Wolf-Dog said at September 4, 2006 9:12 PM:

It appears that the Real Estate sector will probably suffer a recession for a while. A lot of naive first time buyers were trapped in very exotic types of adjustable rate mortgages, and these victims will be decimated.


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