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Real Estate Agent Earnings and Local Housing Prices

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  • Hirsch, Barry

    (Georgia State University)

  • Macpherson, David A.

    (Trinity University)

  • Qu, Zichong (Tom)

Abstract

Real estate agents typically receive commissions based on a fixed percentage of home price purchases. Because housing prices vary across markets, one might expect that realtors have higher earnings in high-priced markets. Prior work by Hsieh and Moretti (2003) suggests that entry among realtors leads to roughly equivalent earnings across markets. We examine evidence from U.S. metro areas during 1996-2021 using Zillow housing price indices, coupled with realtor microdata (the CPS and ACS) including realtors' location, earnings, and work hours. Realtors' earnings elasticity with respect to local home prices is roughly 0.30, so that 10 percent higher home prices lead to 3 percent higher earnings. The positive wage-price relationship is not unique to realtors. The overall workforce has wage-price elasticities (conditioned on covariates) of about 0.20, two-thirds the size of realtors' elasticity. Realtors receive slightly higher earnings in higher-priced cities, about 1 percent for each 10 percent difference in housing prices. Weekly work hours across markets vary little with respect to metro housing prices, both for realtors and non-realtors. Evidence supports Hsieh and Moretti's conclusion that "over-entry" in high-priced markets is due to the inefficiency of fixed percentage commissions. Realtors have higher hourly earnings (and variance) than do "similar" non-realtor workers within the same labor markets, on the order of 10 percent. Evidence supports the view that real estate agents (on average) realize wage premiums. We suspect that higher earnings reflects both unmeasured personal attributes and compensating differentials for risk (e.g., variable earnings).

Suggested Citation

  • Hirsch, Barry & Macpherson, David A. & Qu, Zichong (Tom), 2022. "Real Estate Agent Earnings and Local Housing Prices," IZA Discussion Papers 15300, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp15300
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    References listed on IDEAS

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    1. Winters, John V., 2009. "Wages and prices: Are workers fully compensated for cost of living differences?," Regional Science and Urban Economics, Elsevier, vol. 39(5), pages 632-643, September.
    2. Katharine G. Abraham & John Haltiwanger & Kristin Sandusky & James R. Spletzer, 2013. "Exploring Differences in Employment between Household and Establishment Data," Journal of Labor Economics, University of Chicago Press, vol. 31(S1), pages 129-172.
    3. Christopher R. Bollinger & Barry T. Hirsch, 2006. "Match Bias from Earnings Imputation in the Current Population Survey: The Case of Imperfect Matching," Journal of Labor Economics, University of Chicago Press, vol. 24(3), pages 483-520, July.
    4. Barry T. Hirsch & Edward J. Schumacher, 2004. "Match Bias in Wage Gap Estimates Due to Earnings Imputation," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 689-722, July.
    5. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1257-1278, December.
    6. Barry T. Hirsch & David A. MacPherson, 2003. "Union Membership and Coverage Database from the Current Population Survey: Note," ILR Review, Cornell University, ILR School, vol. 56(2), pages 349-354, January.
    7. Chang-Tai Hsieh & Enrico Moretti, 2003. "Can Free Entry Be Inefficient? Fixed Commissions and Social Waste in the Real Estate Industry," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 1076-1122, October.
    8. David Albouy, 2016. "What Are Cities Worth? Land Rents, Local Productivity, and the Total Value of Amenities," The Review of Economics and Statistics, MIT Press, vol. 98(3), pages 477-487, July.
    9. Christopher R. Bollinger & Barry T. Hirsch & Charles M. Hokayem & James P. Ziliak, 2019. "Trouble in the Tails? What We Know about Earnings Nonresponse 30 Years after Lillard, Smith, and Welch," Journal of Political Economy, University of Chicago Press, vol. 127(5), pages 2143-2185.
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    More about this item

    Keywords

    wages; housing prices; real estate agents; wage differentials;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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