I feel like Caplan is the western communist in the 1970s who visits the Eastern Bloc and slowly realizes there is something deeply wrong with his model of the world.
We're in a situation where young libertarians increasingly have to hide their views from the very same corporations old libertarians spent their lives defending. My message to libertarians is this: there is another path. You can back fight against this woke corporate tyranny. The power of government can be brought to bear on these people, if only you'd abandon these dumb moralistic scruples.
This might make sense as a level explanation, but what's the change explanation? There's always been party WHIPs and the power of the bully pulpit, but clearly things have changed.
I would have to think this is accounted for somewhere in the literature but I didn't see it mentioned: surely the illiquidity and lack of transparency of the housing market, and the trouble involved in real estate transactions, allows this sort of thing to go on.
Also, it's failing to account for the fact that the seller pays for both agents but only selects one of them, and there's not really a norm in place for rewarding the buyer for bring a cheaper agent (or no agent), since the whole price is a negotiation anyway.
I don't really know how much money my house will sell for. Keeping a house on the market is stressful and inconvenient. So if an agent is willing to work for half price (i.e. 1.5% instead of 3.0%), while the agent that everyone says is "the best in town" requires 3.0%, do I really think it's worth it to go into the bargain bin on this one?
It seems a reasonable guess (even if false) for sellers to predict that "the best agent in town" will bring them at least 150 bps in value over the bargain bin agent, between securing a higher selling price, completing the transaction more smoothly (e.g. doing the cheating that is necessary to make sure the house appraises), and getting the house off the market sooner.
I'm replying very late here, but just wanted to say wow, I had no idea that commissions were so high in the US.
In Australia, a typical commission is more like 2%. Last time I sold a property I paid 1.4%. And I still feel like that was still a lot of money for the number of hours of work that the agents put in.
Perhaps not coincidentally, there's no need for cooperation between agents in the Australian system, there is generally no "buyer's agent".
Having just spent some time googling "what does a buyer's agent do in the US" I'm still not really clear on what a buyer's agent actually does in the US. It sounds like they look at listings for you and phone you up to suggest ones you might like to look at?
There are three million real estate agents but there is only one broker in an office. The brokers can hold the line for dozens of agents potentially (both as a useful excuse and actually letting out disciplinary actions for their agents). So the number of people necessary for collusion is much much smaller. And a sales agent can’t go out on their own without getting their brokers license.
It is legal for a person to represent themselves in buying a house - the license is only for people who represent others. I have twice repped myself and both times I have run into walls on the fee. The brokers (according to the listing agents) refused to cut the total and did NOT like dealing with me because of the precedent it set. One actually told me that directly. I was not proposing anything that would change his fee, but he required me to keep the gross fee at 6% and then I got a rebate at closing for the buy side fee (vs. just showing the sell side 3%).
Realtors today will drop to 5% but that is only after 10+ years of pressure. There may not be much obvious direct evidence of systemic collusion but it’s at the broker level, not the listing agents.
The mobs won’t keep you from speaking your mind ? I noticed you don’t speak out much against the war , even though you’re close to a pacifist and war between the US and Russia could very well end up killing us all. Why the silence if it’s not because of fear of the the mobs?
My understanding is that once you get into multi-million-dollar transactions, buyers and sellers of real estate do sometimes negotiate hourly rates instead of flat commissions.
I think a lot of what you say is wrong (tho a lot right or I wouldn't be reading... including this analysis) but I definitely appreciate the fact that you are an academic who isn't avoiding controversial topics. Whatever issues I may have with it your book helps prevent the Overton window from unduly narrowing
1) I've seen lots of brokers offering 3% commissions (seller and buyer combined). This isn't a fringe position, many big realtors are discounting (in fact I think 5% or less is pretty normal these days).
2) Realtors don't appear to make that much income on average. It seems to me that while a sale is indeed very profitable relative to the time invested, the amount of time chasing a sale is significant and has a return of $0 in most cases.
3) Being a realtor seems to be an enjoyable profession for a lot of people (women). Enjoyable professions seem to demand low wage rates because they are enjoyable. I don't think wokeness really causes *joy*, but it appears to generate dopamine. Like being a real estate agent there may be a lot of churn.
Great analysis. It's also why a commitment to political liberalism requires intolerance of the intolerant. In the same way that a peaceful society requires violence against the violent (courts and jails). Alas, far too many liberals/centrists/conservatives/heterodox people strongly oppose cancel cancel culture, but wrongly believe it would be unjust to use the same tactics against the perpetrators. Just as the violent must be constrained by violence, so social stigma can only be beaten by stigma. This will only end, when the incentives are reversed. Everyone who opposes cancel culture should vow maximal tolerance to opponents of all political strikes, while also committing to shaming and ostracising their peers who join in with woke mobs (or at least the ones who act as ring leaders).
I feel like Caplan is the western communist in the 1970s who visits the Eastern Bloc and slowly realizes there is something deeply wrong with his model of the world.
We're in a situation where young libertarians increasingly have to hide their views from the very same corporations old libertarians spent their lives defending. My message to libertarians is this: there is another path. You can back fight against this woke corporate tyranny. The power of government can be brought to bear on these people, if only you'd abandon these dumb moralistic scruples.
The barriers to entry to become a RE agent appear to be small.
If the commissions are routinely too high, you'd expect a flood of people entering the business. Yet we don't seem to see that.
(It's not like there's an American Medical Association keeping supply down.)
So maybe the commissions aren't "too high".
You can now do FSBO and get about the same price as selling through an agent. The internet is bringing real estate commissions way down.
This might make sense as a level explanation, but what's the change explanation? There's always been party WHIPs and the power of the bully pulpit, but clearly things have changed.
I would have to think this is accounted for somewhere in the literature but I didn't see it mentioned: surely the illiquidity and lack of transparency of the housing market, and the trouble involved in real estate transactions, allows this sort of thing to go on.
Also, it's failing to account for the fact that the seller pays for both agents but only selects one of them, and there's not really a norm in place for rewarding the buyer for bring a cheaper agent (or no agent), since the whole price is a negotiation anyway.
I don't really know how much money my house will sell for. Keeping a house on the market is stressful and inconvenient. So if an agent is willing to work for half price (i.e. 1.5% instead of 3.0%), while the agent that everyone says is "the best in town" requires 3.0%, do I really think it's worth it to go into the bargain bin on this one?
It seems a reasonable guess (even if false) for sellers to predict that "the best agent in town" will bring them at least 150 bps in value over the bargain bin agent, between securing a higher selling price, completing the transaction more smoothly (e.g. doing the cheating that is necessary to make sure the house appraises), and getting the house off the market sooner.
I'm replying very late here, but just wanted to say wow, I had no idea that commissions were so high in the US.
In Australia, a typical commission is more like 2%. Last time I sold a property I paid 1.4%. And I still feel like that was still a lot of money for the number of hours of work that the agents put in.
Perhaps not coincidentally, there's no need for cooperation between agents in the Australian system, there is generally no "buyer's agent".
Having just spent some time googling "what does a buyer's agent do in the US" I'm still not really clear on what a buyer's agent actually does in the US. It sounds like they look at listings for you and phone you up to suggest ones you might like to look at?
Biz idea: woke real estate brokerage.
There are three million real estate agents but there is only one broker in an office. The brokers can hold the line for dozens of agents potentially (both as a useful excuse and actually letting out disciplinary actions for their agents). So the number of people necessary for collusion is much much smaller. And a sales agent can’t go out on their own without getting their brokers license.
It is legal for a person to represent themselves in buying a house - the license is only for people who represent others. I have twice repped myself and both times I have run into walls on the fee. The brokers (according to the listing agents) refused to cut the total and did NOT like dealing with me because of the precedent it set. One actually told me that directly. I was not proposing anything that would change his fee, but he required me to keep the gross fee at 6% and then I got a rebate at closing for the buy side fee (vs. just showing the sell side 3%).
Realtors today will drop to 5% but that is only after 10+ years of pressure. There may not be much obvious direct evidence of systemic collusion but it’s at the broker level, not the listing agents.
The mobs won’t keep you from speaking your mind ? I noticed you don’t speak out much against the war , even though you’re close to a pacifist and war between the US and Russia could very well end up killing us all. Why the silence if it’s not because of fear of the the mobs?
The model applied to housing claims to solve the large commission problem. What does applying this model to cancel culture solve?
My understanding is that once you get into multi-million-dollar transactions, buyers and sellers of real estate do sometimes negotiate hourly rates instead of flat commissions.
Realtors generally make $50-80k annually. (https://www.homelight.com/blog/how-many-realtors-in-the-us/) Not trying to defend them, really, but maybe 6% just isn't that steep for what they do.
I think a lot of what you say is wrong (tho a lot right or I wouldn't be reading... including this analysis) but I definitely appreciate the fact that you are an academic who isn't avoiding controversial topics. Whatever issues I may have with it your book helps prevent the Overton window from unduly narrowing
1) I've seen lots of brokers offering 3% commissions (seller and buyer combined). This isn't a fringe position, many big realtors are discounting (in fact I think 5% or less is pretty normal these days).
2) Realtors don't appear to make that much income on average. It seems to me that while a sale is indeed very profitable relative to the time invested, the amount of time chasing a sale is significant and has a return of $0 in most cases.
3) Being a realtor seems to be an enjoyable profession for a lot of people (women). Enjoyable professions seem to demand low wage rates because they are enjoyable. I don't think wokeness really causes *joy*, but it appears to generate dopamine. Like being a real estate agent there may be a lot of churn.
I'd like to see a response from your opposing colleagues
So if this model doesn't explain consistent RE commissions, what does?
Great analysis. It's also why a commitment to political liberalism requires intolerance of the intolerant. In the same way that a peaceful society requires violence against the violent (courts and jails). Alas, far too many liberals/centrists/conservatives/heterodox people strongly oppose cancel cancel culture, but wrongly believe it would be unjust to use the same tactics against the perpetrators. Just as the violent must be constrained by violence, so social stigma can only be beaten by stigma. This will only end, when the incentives are reversed. Everyone who opposes cancel culture should vow maximal tolerance to opponents of all political strikes, while also committing to shaming and ostracising their peers who join in with woke mobs (or at least the ones who act as ring leaders).