Thread by @ReformedTrader

1/ Market Distortions When Agents are Better Informed: The Value of Information in Real Estate Transactions (Levitt, Syverson)

"Agent-owned homes sell for 3.7% more than other houses & stay on market longer, even after controlling for characteristics."

papers.ssrn.com/sol3/papers.cf…

2/ "As a result of an information advantage relative to clients, expert agents may mislead clients by exaggerating the costs or difficulty of a solution, providing unneeded services, or otherwise distorting information to maximize the expert’s own payoff.

3/ "A listing agent has strong incentives to sell a house quickly, even at a lower price, and thus may encourage clients to accept sub-optimally low offers too quickly.

"Typically, the agent receives only 1.5% of each marginal dollar of the price for which the house sells.

4/ "If the combined financial & opportunity cost to the agent were $200/week, she would be indifferent between selling the house today & waiting one more week for an offer $13,333 higher with certainty. But the homeowner would much prefer to wait a week & take the higher offer."

5/ "Real estate agents tend to live in homes that are larger, newer, and have more amenities like master baths and fireplaces, even compared to other homes on the same block. These systematic differences in housing characteristics highlight the importance of controls."

6/ "The implied price gap between agent-owned and non-agent-owned home sales is 3.7%, with agent-owned homes staying on market 9.5 days longer.

"This implies a 140% discount rate. Even using 20% (as per home seller behavior), agent houses sell for 3.2% more than their clients'."

7/ "Words with zero or negative correlations with prices include some that damn with faint praise (“clean,” “quiet,” “youthful”); those that are vague (“fantastic,” “charming,” and “!”), and those that characterize features already in the listing sheet (e.g. “spacious”)."

8/ More on the effects of the words used in property descriptions and MLS comments:

Real Estate Agent Remarks: Help or Hype?

https://twitter.com/ReformedTrader/status/1417933899255074816

Expertise Value Added in the Real Estate Market

https://twitter.com/ReformedTrader/status/1417529594958073856

9/ "The sizes of agents’ implied information advantage in the sub-samples accord with expectations: largest for the most dissimilar blocks but progressively smaller as heterogeneity falls.

"Agents were more able to act opportunistically in the earlier part of the sample."

10/ "If agents’ only service is information about valuations and likely offers, it is surprising that more sellers don’t hire independent appraisers.

"Alternatively, agents may provide a broader bundle of services worth the commission despite the distortions highlighted above."

11/ Related reading:

Do Real Estate Brokers Add Value When Listing Services are Unbundled?

https://twitter.com/ReformedTrader/status/1418237527819837440

Relative Performance of Real Estate Marketing Platforms: Mls Versus Fsbomadison.Com

https://twitter.com/ReformedTrader/status/1418015885726404608

Superfreakonomics

https://twitter.com/ReformedTrader/status/1382029570346393602