Paying Less for Real Estate Brokerage: What Can Make it Happen?

36 Pages Posted: 19 Jul 2005

See all articles by Robert W. Hahn

Robert W. Hahn

University of Oxford, Smith School; Georgetown University

Robert E. Litan

Council on Foreign Relations (CFR) - Council on Foreign Relations- Washington D.C.

Jesse Gurman

AEI-Brookings Joint Center for Regulatory Studies

Date Written: July 2005

Abstract

This paper provides an economic analysis of the residential real estate brokerage industry. We find that the traditional model for residential real estate brokerage services may be dated, and could be improved substantially with some public policy interventions that spur innovation.

We believe that there are numerous barriers to entry that are slowing the emergence of new models for serving consumers. Some of these barriers are likely to be anti-competitive. Examples include discrimination against new brokerage models and online brokers who wish to join multiple listing services; state legislation that would require minimum service requirements, effectively preventing a la carte offerings; and prohibitions by real estate commissions on providing rebates to customers. In our opinion, none of these practices should be allowed.

We offer three broad policy recommendations: First, federal and state antitrustauthorities should carefully scrutinize efforts to limit competition in the residential real estate brokerage market. Second, state governments should refrain from adopting laws or rules that inhibit competition in real estate brokerage. Third, Congress should allow the Federal Reserve Board and the Treasury Department to permit banks, which have long been natural potential entrants into this business, to offer residential real estate brokerage services through separately capitalized affiliates.

We do not know which business models are likely to succeed in the marketplace for residential real estate services in the future. We do believe, however, that judicious public policy interventions could have a marked impact on improving services and lowering costs for home buyers and sellers.

Keywords: real estate, brokerage, residential, anti-competitive

JEL Classification: H00

Suggested Citation

Hahn, Robert W. and Litan, Robert E. and Gurman, Jesse, Paying Less for Real Estate Brokerage: What Can Make it Happen? (July 2005). AEI-Brookings Joint Center Working Paper No. 05-11. Available at SSRN: https://ssrn.com/abstract=757867 or http://dx.doi.org/10.2139/ssrn.757867

Robert W. Hahn (Contact Author)

University of Oxford, Smith School ( email )

Oxford
United Kingdom

Georgetown University

Georgetown Center for Business and Public Policy
Washington, DC 20057
United States

Robert E. Litan

Council on Foreign Relations (CFR) - Council on Foreign Relations- Washington D.C. ( email )

1777 F Street, NW
Washington, DC 20006
United States

Jesse Gurman

AEI-Brookings Joint Center for Regulatory Studies ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States

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