Working Paper: NBER ID: w31683
Authors: Sophia Gilbukh; Paul Goldsmith-Pinkham
Abstract: The real estate market is highly intermediated, with 90 percent of buyers and sellers hiring an agent to help them transact a house. However, low barriers to entry and fixed commission rates result in a market where inexperienced intermediaries have a large market share, especially following house price booms. Using rich micro-level data on 8.5 million listings and a novel instrumental variables research design, we first show that houses listed for sale by inexperienced real estate agents have a lower probability of selling, and this effect is strongest during the housing bust. We then study the aggregate implications of the distribution of agents' experience on housing market liquidity by building a dynamic entry and exit model of real estate agents with aggregate shocks. We find that 3.7 more listings would have been sold in a flexible commission equilibrium. It would require a six-fold increase in entry costs for real estate agents to achieve this level of liquidity within the fixed commission framework.
Keywords: real estate; housing market; liquidity; real estate agents; market dynamics
JEL Codes: G5; R3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| real estate agent experience (L85) | housing market outcomes (R31) |
| inexperienced agents (L85) | probability of selling (C69) |
| market conditions (P42) | sale probability of inexperienced agents (L85) |
| inexperienced agents (L85) | foreclosure risks (G21) |
| strategic pricing by experienced agents (L85) | sale probabilities (L11) |
| prevalence of inexperienced agents (L85) | housing market liquidity (R31) |
| prevalence of inexperienced agents (L85) | foreclosure rates during economic downturns (E44) |