FOR SALE...BY REAL ESTATE AGENT
June 29, 2005
New research from the National Bureau of Economic Research finds that real estate agents receive a price premium when selling their own home because they are often better informed.
The authors examined data on 98,000 suburban Chicago home sales from the Multiple Listing Service of Northern Illinois -- where roughly 3,300 of the homes were owned by real estate agents. After controlling for location, characteristics, and condition, the authors found that agents selling their own homes behaved differently.
Agent-owned houses stayed on the market almost 10 days longer and sold for about 3.7 percent more than comparable nonagent owned homes. Agents selling their own homes capture both their commission and the homeowner's share. For example:
- A 3.7 percent price increase on a $300,000 house generates an additional $11,100.
- Homeowners would realize an additional $10,434 after paying standard commission rates, while the real estate agent would receive only an additional $167 at standard commission rates.
- Unless the real estate agent was the homeowner (and received 95 percent of the additional sale value), it would not be worth waiting an additional week for the higher sale price.
The authors also find that a real estate agent's additional price premium depends on the availability of price information, which varies considerably across neighborhoods and over time. For example:
- In areas with nearly identical houses, past home sales are good indicators of likely selling prices -- so the agent price premium is only 2.3 percent.
- In contrast, heterogeneous neighborhoods have an agent price premium of 4.3 percent.
- Similarly, the introduction of the internet reduced an agent?s advantage.
- Before the advent of the Internet, the premium was 4.9 percent, but by the late 1990s, the premium dropped to 3.2 percent.
Source: Linda Gorman, "Do Real Estate Agents Exploit their Information Advantage?" NBER Digest, March 2005; based upon: Steven Levitt and Chad Syverson, "Market Distortions When Agents Are Better Informed: The Value of Information in Real Estate Transactions," National Bureau of Economic Research, Working Paper No. 11053, January 2005.
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