News Flash: Realtors Hate Levitt

About a year ago, we wrote this article about how real-estate agents would seem to be an endangered species. The article included an interesting piece of research (by Chang-Tai Hsieh and Enrico Moretti) which showed that even during a real-estate boom, the typical agent doesn’t make a whole lot of money. Why not? Because the barriers to entry are so low that a hot real-estate market is soon flooded with new agents, who cannibalize existing agents’ profits.

This theory would predict that when the market cools, the number of agents falls. Indeed, that’s what’s happening now. This Wall Street Journal article describes the trend nicely:

When David Lereah, chief economist of the National Association of Realtors, addressed the group’s convention in New Orleans in November, he got one of the biggest bursts of applause by predicting there would be fewer Realtors around in a year. Mr. Lereah said in an interview that he expects membership in the trade group to decrease by about 6% to 8% from the record of nearly 1.4 million reached in 2006.

But enough about the data. Let’s get on with the mud-slinging. A recent edition of Realtor magazine listed the industry’s “25 Most Influential Thought Leaders” and then, separately, “15 Others Who’ve Had an Impact.”

This second list is chock-full of economists. Ben Bernanke gets a thumbs-up from the Realtors because he “called at least a temporary halt after 17 straight rate increases that have troubled real estate buyers.” The Realtors zing Robert Schiller for his “failed bubble scenario” which “demonstrates that sometimes even smart guys get it wrong.”

But the Realtors seem most unhappy with our own Steve Levitt:

Why: Contends in his 2006 best-seller “Freakonomics” that real estate practitioners work harder for themselves than for their clients.

About the nicest thing Steven D. Levitt and coauthor Stephen J. Dubner, a New York City-based journalist, have to say about the real estate industry is that the Internet will soon push practitioners onto the endangered species list. Their study of the economic impacts of various social phenomena also asserts that real estate sales associates sell clients’ homes faster and at prices 3 percent lower than they get for their own properties. The Harvard University graduate has become the darling of the media and academia for his arcane links between social trends, such as drug dealing and abortion, and economic outcomes. They don’t call economics the soft science for nothing.

My response:

1. Thanks, Realtors, for continuing to publicize our book.

2. Does anyone besides me see anything a wee bit comical about the National Association of Realtors making fun of Levitt and economics as “the soft science”? Brings to mind a certain pot and kettle I once knew …


I agree with this. Realtors add little value if you have access to the internet and MLS.

My parents sold their house last year in a hot RE Market. The realtor did very little than listing it in MLS. The house sold for over $600K the first day on the market and the RE agent pocketed $30K for about 10 hours of work.

That said, if the market goes down, they could easily go a year without a paycheck. Boom or bust.


What are you talking about, realtors don't claim to be hard scientists or scientists at all. If I criticized Michael Brown for being incompetent as the head of FEMA, it would be silly to say, "But Minderbender, you're not an expert in disaster management! Pot kettle black!"


I've been trying to buy a house for more than a year now. I can't stand realtors. And yes, lower-case, thank you very much.

Ike Pigott

"Their study of the economic impacts of various social phenomena also asserts that real estate sales associates sell clients' homes faster and at prices 3 percent lower than they get for their own properties."

Asserts? No, the assertion would be that 'agents work harder for themselves' as the explanation for the discrepancy in the data. Data don't lie. It either is or it isn't.

The facts show that agents hold on and hold out longer when selling their own property. If they were clever, they might try to spin that "We hold onto our own homes longer because we spend our energy trying to move our clients' houses."

This isn't a case of realtors being inconsistent. The author who slammed Levitt is merely projecting sublimated guilt, and is in essence providing a basis for us to believe the "non-asserted assertion" that they work harder for themselves.


As a real-estate investor, I look at various costs when selling a home. In Washington state we have an excise (sales) tax of almost 2%, and then when you consider a real estate agent's fee of 6%, plus closing costs, the cost to sell a home can be 10% of the sales price. Does the realtor who is selling a 500K house really do more work than a realtor who is selling a 250K house?

Can anyone identify other industries where the seller pays for a majority of the transaction fees while the buyer pays a much smaller amount. Look at sales tax, buyers pay for products they buy. Look at the stock market, sellers and buyers pay a transaction fee.

I sold my own home last year without an agent. I learned a lot, but I would do it again. I saved over $20K - this is big money when you think about paying for college or having extra money for retirement.

I believe it is time for the real estate industry to change, similar to what happened with the travel industry, or buying and selling stocks. The Internet is technology that levels the playing field for consumers.

I have some business ideas I plan to implement. They center around the concept of not using realtors for your transactions unless you want to pay thousands of dollars.


Andy from Houston

Realtors are like any other profession which works on commission. You will have terrible realtors that push bad transactions on uninformed buyers / sellers to futher their own self interest, and you will have good ones who actually take the desires of their client to heart and try their best to meet their client's requirements.

I have seen far more of the former, but the latter do exist. I agree that they will be obsolete in the future.


Unfortunately, from what I understand, selling yourself is not pure profit versus using a Realtor, even if you sell the home just as fast, unless perhaps it's a super-hot sellers market. Why? Because any buyer that knows you are pocketing (saving) a 6% commission is going to try to get a piece of it for themselves, usually by offering less for a FSBO than for an agented house.


We currently have our house up for sale in a tepid market. We never considered FSBO because we are serious about selling and when I see FSBO in this market I think "not serious". I also suspect "Truth's" comment about price discounting for FSBO homes may be right.

We also chose our agent carefully - one that works for a large local firm and has lived in our neighborhood over 20 years and has sold plenty of homes here.

A real estate agent costs A LOT of money, but they promote the house, did a nice internet listing in addition to MLS, hired a good photographer, created a nice brochure, gave advice on fix up, pointed us at some good workmen for the tasks we couldn't do, did a better "comparables" and price analysis than we could have done ourselves, and so on.

That and the convenience of being able to do my own job every day instead of becoming my own realtor makes if all worthwhile. I hope.

That said, we will keep our own counsel on the ultimate sales price and take the cited study into consideration.