Heterogeneous Real Estate Agents and the Housing Cycle

67 Pages Posted: 16 Aug 2019

See all articles by Sonia Gilbukh

Sonia Gilbukh

City University of New York (CUNY) - Department of Real Estate

Paul S. Goldsmith-Pinkham

Yale School of Management

Date Written: August 13, 2019

Abstract

The real estate market is highly intermediated, with 90% 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 10.4 million listings, we first show that seller agents’ experience is an important determinant of client outcomes, particularly during real estate busts. Houses listed for sale by inexperienced agents spend more time on the market and have a lower probability of selling. We then study the aggregate implications of the agents’ experience distribution on real estate market liquidity by building a theoretical entry and exit model of real estate agents with aggregate shocks. Several policies that raise the barriers to entry for agents are considered: 1) increased entry costs; 2) lower commission rates; and 3) more informed clients. Across each counterfactual, increasing barriers to entry shift the distribution of agents across experience to the right, improves liquidity, and reduces the amplitude of liquidity cycles in the housing market.

Keywords: real estate, housing cycle, intermediaries, housing search

JEL Classification: R3

Suggested Citation

Gilbukh, Sonia and Goldsmith-Pinkham, Paul S., Heterogeneous Real Estate Agents and the Housing Cycle (August 13, 2019). Available at SSRN: https://ssrn.com/abstract=3436797 or http://dx.doi.org/10.2139/ssrn.3436797

Sonia Gilbukh (Contact Author)

City University of New York (CUNY) - Department of Real Estate ( email )

United States

Paul S. Goldsmith-Pinkham

Yale School of Management ( email )

NY
United States

HOME PAGE: http://paulgp.github.io

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