Stephen Dubner and Steven Levitt renew their argument that real estate brokers aren’t worth 6%, citing a study (PDF) conducted by Stanford economist B. Douglas Bernheim and one of his graduate students, Jonathan Meer, which shows that using a broker has no effect on a home’s average selling price.
We are an (online) broker ourselves, but have argued that consumers should be able to choose the real estate services for which they pay, so I’m not sure we have a dog in this fight. In the past, we have welcomed studies showing that buyers and sellers can get along without a broker, and argued that a client working with an online broker negotiates a better price. But in this case I was surprised that the Freakonomics team didn’t evaluate the Stanford economists’ methodology.
The Stanford study only evaluated 800 homes sold on the Stanford campus, “the ownership of which is limited to Stanford faculty and a limited number of senior staff.” In such an environment, marketing is much easier because of the small number of potential buyers, trust is high because of the buyers’ affiliations with one another, and supply is extremely limited: many academics would kill, or even teach an extra freshman survey course, to live on the Stanford campus.
Moreover, there is no broker-operated MLS on the Stanford campus, and likely no other broker representing the buyer, so there is no rationale for buyers’ brokers to steer clients away from properties not paying a commission. It seems like a leap to draw conclusions from this data set for the typical consumer, who is probably selling a home in a larger market, with more competition, to strangers largely represented by brokers.
In real estate and in life, college is a smaller, more perfect vision of how the rest of the world could be. We thought it was interesting that the previous academic study on brokers’ effectiveness focused on Madison, Wisconsin, because this is also a small college community where alternative approaches to real estate have reached critical mass. Maybe these communities point the way to a post-brokerage world waiting for all us, where both sides abandon their brokers, where we can access information for ourselves online, where we can come to terms more easily and economically.
For now though, we should at least take such findings with a grain of salt, because the Stanford campus isn’t the Hobbesian jungle of, say, the Orange County real estate market. We revere the Freakonomics team, who inspired us to offer real estate e-commerce in the first place, but it seems a bit too credulous to present these findings without acknowledging that Stanford, far more even than Madison, is a different world.
Also, the NYT obituary on William F. Buckley is unusually good:
“No other act can project simultaneous hints that he is in the act of playing Commodore of the Yacht Club, Joseph Goebbels, Robert Mitchum, Maverick, Savonarola, the nice prep school kid next door, and the snows of yesteryear,” Norman Mailer said in an interview with Harpers in 1967… For Murray Kempton, one of his many friends on the left, the Buckley press conference style called up “an Edwardian resident commissioner reading aloud the 39 articles of the Anglican establishment to a conscript of assembled Zulus.” A friend of mine was, as a teenager, once fundraising door-to-door in Buckley’s Stamford neighborhood, and William F. Buckley invited him in and held forth at length on obscure topics…