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Is There A Conspiracy In The Real Estate Business?

We hear it time and time again from FSBO sellers – why should I rely on a real estate agent to sell my home when I am perfectly capable myself? You likely hear similar questions about the real estate agents’ roles in the selling and buying processes. Apparently, researchers are trying to put a science to the question and others like it that promote large-scale changes in the way that real estate transactions are done today. Namely, the commissions that brokers and agents receive as a result. And the answer from the industry is always the same: That only an expert in real estate can make the process go smoothly and successfully.

The most recent working paper from the National Bureau of Economic Research makes a further claim. They say that through their research, they have concluded that there is a serious case of collusion going on in the real estate industry. What’s the coup? That real estate agents work together to create exorbitant commission rates despite seeming lower barriers to entry and advances in technology.

Yes, it may be easier for sellers to navigate the confusing waters of real estate on their own, but it’s only easier, not resolute. The real question that the researchers might fail to be asking is, “What happens after the transacting begins?”

is there a conspiracy in the real estate business 01A review of all the steps involved in selling a home reveals that the confusion does not start at the beginning but as the process starts to build toward a sale. Negotiating, laws, titles, all the technical pieces that also require interaction with others in a space in which most people are not well-versed is the reason why people need real estate professionals working on their behalf.

A major point the paper reveals is that sellers’ agents and buyers’ agents work together to ensure that, despite advances in real estate, their commissions remain relatively as high as they have been for decades. Here’s something for the researchers to think about: You’re dealing with people whose value does not diminish despite advances. And just how advanced are the technologies they speak of that justifies an argument for lower commissions?

Let’s look to the home seller now. They can absolutely work without a real estate agent. It’s a free country after all! So why don’t they most of the time? Because they see the value in the commission that they are paying. Real estate is no walk in the park!

Another point the paper claims is that this current state of commissions pushes out agents who charge less, making it more attractive for agents to work only with other agents who will divvy up a larger share of their pie. A good question to ask – why the lower real estate commissions? Is it to be provide a more attractive selling point to a seller by charging them less? And what kind of living could one make unless a united front of agents that charge less and don’t mind sharing less come together?

Overall, real estate is a people-focused business. It’s not like going to a store and pulling a product off a shelf. There’s an art to many aspects and a knowledge base that is not worth many people’s time to acquire.

What do you think? Do you think real estate agents “collude”? What do you think about the paper’s idea that lower-commission agents are being eked out? And what do you see as a “solution” to the paper’s problem in question?



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