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Housing Market Intermediaries

Paper Session

Sunday, Jan. 9, 2022 10:00 AM - 12:00 PM (EST)

Hosted By: American Real Estate and Urban Economics Association
  • Chair: Elliot Anenberg, Federal Reserve Board

New Listing Alert: Alternative Theory of Housing Search

Sonia Gilbukh
,
City University of New York-Baruch College

Abstract

This paper proposes an alternative approach to modeling search in real estate. Instead of search frictions resulting from buyers' inability to sample the entire distribution of houses, all successful matches between buyers and sellers realize immediately. The current stock of buyers and sellers are therefore mismatched and both sides are waiting for the new arrivals in the market to find a successful counter party. Thus, houses on the market sell to newly arrived buyers only, and, similarly, buyers who have been looking for a while only buy newly listed properties. Using data of 3.3 million listings from one of the biggest Multiple Listing Service platform in the United States, I test several predictions of this model that are at odds with the more commonly used search models in this literature. I find that, consistent with the model, 1) sales are much more correlated with new listings than they are with the market inventory, 2) sale hazard rates decline after the initial period, and 3) houses that sell in the initial period are likely to sell at a premium while those that spend a long time on the market sell at a discount.

Does Financial Distress Affect Workers’ Productivity? Evidence from Real Estate Agents

Liuming Yang
,
Georgia State University

Abstract

This paper studies how financial distress affects workers' productivity. Using the real estate brokerage industry as a setting and bankruptcy filing as a proxy for financial distress, we find that real estate agents' productivity is significantly lower in the year of filing for bankruptcy. Sale price of the agent-represented houses falls by 4% in the year when real estate agents file for bankruptcy than the non-filing year, relative to the control group. Next, we find the decrease in productivity is due to distraction or loss of attention from financial distress. Last, we show the spillover effect of financial shocks from distressed real estate agents to home sellers. Specifically, we find home seller is more likely to choose a larger LTV and purchase a smaller house when his or her house is sold by a financial distressed broker. Our results in the paper find the productivity reduction could amplify the adverse financial shocks to agents and cause a negative spillover through social networks, and our results have policy implications.

Conflicts of Interest and Agent Heterogeneity in Buyer Brokerage

Yanting Wu
,
Concordia University
Lawrence Kryzanowski
,
Concordia University
Tingyu Zhou
,
Florida State University

Abstract

This paper investigates the incentives of agents working with buyers (buying agents) under the fixed percentage commission system (FPCS) and the implications on housing market outcomes. Our model shows that the FPCS without a binding contract between the buyer and the buying agent could produce outcomes that are more equitable for buyers. The reason is that the absence of a binding contract helps mitigate the conflict of interest between the buyer with her agent and ensures a more faithful behavior of the buying agent. Our model shows that agent heterogeneity plays an important role in determining the binding force of the FPCS in the absence of a binding contract. Results from simulations and empirical analyses using house transactions in Canada support our model predictions.

Zero Price Effect and Consumer Welfare: Evidence from Online Classified Home Service

Danny Ben-Shahar
,
Tel Aviv University
David Ash
,
Tel Aviv University

Abstract

Previous behavioral studies have presented evidence according to which consumers overvalue free (zero-priced) goods and services in a way that exceeds a simple cost-benefit comparison. We empirically test whether this tendency to overreact to the free (over the paid) alternative may lead to inferior economic outcomes. We use a unique dataset from a leading online classified home service in Israel that allows sellers to offer their housing unit for sale under either free-basic or paid-premium listing categories. Our results show that while the vast majority of sellers opt for the free-ad category, the paid-premium category generates, ceteris paribus, increased demand, greater transaction price, and decreased time-on-market—adding up to an average net benefit of about 2.3–3.8 percent of the average transaction price (equivalent to about $8.0K–$13.0K). Outcomes are robust to a series of identification and test-design issues. Research findings provide real-world evidence on the adverse welfare effect of consumers’ excessive tendency to opt for free goods and services.

Discussant(s)
Alina Arefeva
,
University of Wisconsin
Gonzalo Maturana
,
Emory University
Christophe Bruneel
,
Toulouse School of Economics
Chun Kuang
,
University of International Business and Economics
JEL Classifications
  • R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location