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In residential real estate an agent is often hired when an owner decides to sell his property. The seller may have less information than his agent and thus may be at a disadvantage in setting the asking price and negotiating the final selling price. The purpose of this study is to offer empirical evidence on whether the percentage commission structure in the real estate brokerage industry creates agency problems. The unique data set allows for the identification of residential properties that were owned by a real estate agent. This enables us to investigate whether the owner-agents are able to use their information advantage to either sell their property more quickly or obtain a higher price for their own properties relative to their clients' properties. The empirical results confirm the predictions of our theoretical model and the presence of agency problems. Using a sample of over 300,000 listings and 193,007 sales, we find that agent-owned houses sell no faster than client-owned houses, but they do sell at a price premium of approximately 4.5 percent.
Previous research (Rutherford et al. 2005; Levitt and Syverson 2005) identify and quantify agency problems in the brokerage of single-family houses. Real estate agents are found to receive a premium when selling their own houses in comparison to similar client-owned houses. Given the homogeneity of the condominium market in comparison to the single-family house market, we use a large sample of condominium transactions to examine if agency problems exist in the condominium market. Controlling for sample selection and endogeneity bias of the data, we find evidence for a similar price premium for agent-owned condominiums. In contrast to the results for single-family houses in the same geographic market, we find that agent-owned condominiums must stay on the market longer to receive a higher price.
This study is the first to examine the principal-agent issues surrounding how agents’ efforts to sell their own properties affect their efforts to sell concurrently listed client properties. The principal-agent model shows that listed agent-owned properties induce agents to worker harder over all, but diminish effort dedicated to marketing concurrently listed client properties, leading to reduced liquidity and/or lower selling prices for those properties. The empirical results show that client properties competing with agent-owned properties remain on the market 30 to 46 % longer and sell for 1.8 % less than properties whose agents have no such conflict of interest.
This article investigates price distortions in dual agent real estate transactions. Consistent with the literature, we find that, on average, dual agent has a null effect on sale price. However, dual agent distortions on sale price emerge after controlling for the ownership of the property. Dual agent is associated with a 6.35% price premium on agent-owned properties, but a 25.10% price discount on government-owned properties and a 5.14% discount on bank-owned properties. In addition, market conditions also play an important role in such price distortions.
Real estate agents rely on clients for referrals to generate future business; this article examines whether concern for referrals disciplines agents. We compare results for sellers who move to another area (and are less likely to provide referrals) with results for sellers who remain in the area (and are more likely to provide referrals). We find that moving-away sellers’ houses have a higher sale rate, sell faster and sell for less (even after controlling for moving-away sellers’ greater impatience). We also provide evidence that the disciplining effect of concern for referrals is stronger for agents who place a greater value on reputation. Finally, among sellers who are better at evaluating and monitoring agents, we see less of the high sell rate, low sale-price effect.
in 2005 there were estimated to be 108MM households. in 2005, the rate of home ownership was about 65%, so 70MM households. In 2005, there were about 1MM Realtors.
If Realtors make up 1.4% of households, then why make their share of the study data 3.3%?
The data was not national and obviously there's local variance.
Quote:
Now further, from the study ... the #1 factor cited was an agent's "information advantage". As of 2005 (and again, actually studying some data from the previous 10 years), they stated:
By 2005, the perceived or real advantage had dropped to just 2.9% and 2.5 days.
This is a good substantive point that you raise. Probably the only substantive criticism of the Levitt study in this thread. I would point out that (1) 2.9% is a huge bias equivalent to tens of thousands of dollars on many homes, (2) human nature doesn't change and people will still respond to financial incentives. If real estate agents were not acting in the best interests of their clients before 2005 do you really think their decision making processes have changed in the last ten years? (3) I could see the effect size diminishing somewhat due to greater internet tools -- but the population also changing in that the best informed home sellers may be moving to FSBO, flat fee, discount brokerages, etc and moving out of the target population. So the net change may not be much at all. (4) If there's clear evidence that real estate agents were not acting in the best interests of their clients just 10 years ago, I think the onus is on you to prove that things really have changed today. Rationalization doesn't cut it. (5) See all of the other studies which show agent bias, some of which are much more recent.
I did already. He very clearly started with a foregone conclusion and worked toward that, which is THE most fatal flaw of ANY study.
The way science works is that you start with an idea or hypothesis. You're not sure if it's true so you run an experiment and collect data that can falsify your idea. That's what the authors did. Their study could have resulted in a negative outcome (no difference between agent and client owned homes) but it didn't. It showed a huge bias for agent owned properties.
Everyone has some bias but researchers generally try to be very careful as to not let it affect their methodology. In this case, even a negative finding would be very interesting as it would go against the prevailing theory. Nobody wants to conduct a shoddy study which fails to be replicated and/or is outed as materially flawed (no study can be perfect but you want to eliminate as many issues as possible). There's no better way for a researcher to make a name for themeselves other than to overturn the work of others.
I wish you were as skeptical about the motivations and rationalization of real estate agents who RECEIVE DIRECT FINANCIAL COMPENSATION. I keep thinking of the quote by Upton Sinclair: "It is difficult to get a man to understand something when his salary depends upon his not understanding it."
I won't be responding anymore on this thread as my goal was never to convince real estate agents that there are issues in how their compensation structure creates conflicts of interest. But I've given enough information that someone coming to this thread can review independent studies and make up their own mind.
I can proudly say I've never put my own needs or wants above a clients in regards to their purchase.
I've only sold 1 of my houses and the others I've kept as rentals. The one I did sell would suck for their report. I took a hit on it to get rid of it after the market tanked around 2007.
As the report said, it's reporting on the "average" agent. Not all agents are the same.
Lastly, I generally put very little stock into such studies because it's impossible to compare them in a vacuum with a subject home. No 2 homes are the same in terms of location, condition, upgrades, etc. Additionally you can have variables like a friend or family member next door, etc. I would hope most agents buy wisely in terms of the home they buy therefore can sell a premium product compared to some of those other test subjects. There's a report saying something like agents get 17% more than FSBO's but for the same reason I put very little stock in that statistic for the same reasons as above even though it's agent friendly.
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