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Heterogeneous Real Estate Agents and the Housing Cycle

Author

Listed:
  • Sophia Gilbukh

    (Baruch College, CUNY)

  • Paul Goldsmith-Pinkham

    (Federal Reserve Bank of New York)

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 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.

Suggested Citation

  • Sophia Gilbukh & Paul Goldsmith-Pinkham, 2019. "Heterogeneous Real Estate Agents and the Housing Cycle," 2019 Meeting Papers 932, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:932
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    References listed on IDEAS

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    2. Sumit Agarwal & John R. Grigsby & Ali Hortaçsu & Gregor Matvos & Amit Seru, 2020. "Searching for Approval," Working Papers 2020-1, Princeton University. Economics Department..
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    More about this item

    JEL classification:

    • G5 - Financial Economics - - Household Finance
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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