Lawrence Yun
Appearances
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
Lawrence Yoon, Chief Economist for the National Association of Realtors.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
Well, for homeowners, it is great news. I mean, people have seen the home price rise roughly 50% from pre-COVID days. But for the real estate professionals, the past two years has been quite difficult. High mortgage rate along with record high home prices. and limited inventory has restricted business opportunity.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
Home sales essentially trending at 30-year low levels, even though their past clients are all happy, super excited about having been a homeowner.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
The real estate profession is one of the most competitive out there. It's almost like economic textbook definition of perfect competition. You have so many new entrants every year, roughly 200,000 new people, entrepreneurs trying to test out their skill set. And then you have roughly 200,000 realtors who gave their best, but they said, no, it's not for me.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
And then, of course, you had all different companies. business models, full service, limited service, discount brokerages. And great thing about America is that Americans can do it by themselves if they want to. So I thought the market was competitive, but I guess the lawyers can always convince few people to get the verdict they want.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
Again, as an economist, I look at the competitive nature, the free entry and exit of the people in the profession. The only other industry that is more competitive, more dynamic than the real estate brokerage industry is in the restaurant, constantly coming in, constantly going out. So let's say there was a couple of unhappy consumers of a restaurant.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
They may bring a lawyer to sue the restaurant to say, look, what they promised did not match the expectation of it. But to make it into a class action lawsuit, to have all the restaurants across the country be impacted, is that a fair judgment? When we take survey of consumers, recent home buyers, recent home sellers, every year, we have been doing it for 40 years, the numbers barely budge.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
Essentially, 70% say they really enjoy working with a realtor.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
The survey was commissioned by NAR. So when the consumers essentially say that they are happy, what was the key reason? And they say it's the trust factor. I don't have to get down to all this paperwork. I trust what my realtor is relaying that information.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
You know, one can talk to any homeowner, just knock on the door, say, did you buy a home with a realtor? Who was the name of the realtor? Were you satisfied with the service? I'm pretty confident the result will be very, very similar.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
The realtors are quite optimistic about the new rules. They don't agree with the verdict, but given that the verdict is in place, sometimes life is never fair on every angle. But entrepreneurs always adapt to new rules. They're explaining to their clients. Buyers are understanding they have to sign the form. And for the home sellers, it is irrational.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
to ignore offers that say you have to pay buyer agent because those offer may be high price or all cash that doesn't involve some complication later. So the process moves on. But at the moment, the market is primarily determined by economic factors, inventory availability, mortgage rate, job market situation.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
We are in the very first innings. There will be a lot of trial and errors and there will be a lot of new companies trying to see what type of new model will best fit under the new rules. We don't know what the numbers are. NAR never collects data on the commission rate, and the reasoning for that is that we don't want to set a focus point.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
So somehow NAR said this is the average rate, and everybody focused on that figure and leads to some tacit collusion. We don't want that. We want the market to be competitive. We don't study the commission. But anecdotally, some people are saying, well, now they are able to submit an offer with a little higher commission than what they had done before. Others are saying a little lower.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
Only concerning factor that I have is the first-time buyers, especially minority first-time home buyers, because we look at the wealth distribution in America. We understand the American history about generational wealth transfer.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
And if somehow it becomes the norm that the buyer have to pay out of their pocket to their agent, essentially you are denying the people in more moderate wealth circumstances, which in the U.S. is essentially minority income.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
I am aware of what outsiders are studying. And Again, as long as you have competition, let the market settle what it would be. I don't know the particulars of selling a home in New York City. Maybe doing a co-op sale, it gets a little more extra complication compared to home selling out in, say, middle America, in Kansas.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
And maybe part of this settlement, maybe there's broader knowledge that people can negotiate. As we know, there are many consumer habits. It is based out of inertia. But with more publicity, maybe people will ask more questions. And those are all good. More competition, more consumer awareness, all positive.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
When people look at the realtor profession, sometimes people think, well, maybe it's like teachers, you know, all the realtors get similar pay. But it's not. It's an entrepreneurial business. It's like a restaurant business. Some restaurants are thriving year after year. Some realtors are thriving year after year. And then other restaurants are fairly new.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
Maybe they will eventually thrive or maybe they will struggle. The median income is around $45,000, but there's a huge distribution. About one-third make less than $20,000, and then you have about 20% make six figures. The entrepreneurs who are coming into the industry say, well, I believe that I have this entrepreneurial skill set, and they give it a try. I mean, one has to admire that.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
Of course, not everyone will succeed because of the competitive nature of the marketplace. Tell me a bit about the demographic makeup of your membership. About two-thirds women, one-third men, and the median age is around 55. Their income level is not comparable to what other profession would possibly offer and stability.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
Yet, I think the joy of seeing that first-time buyer get that home, and then for most homeowners, they become friends. Being part of the community, I think there's some certain intangible satisfaction that comes from working in real estate.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
This is a voluntary choice as people are trying it out. Sometimes it could be for supplemental income for the household. We don't know.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
One interesting part is that we have seen two years of very difficult business opportunity, yet the membership number has barely budged, which is implying that even with the income level being what it is, some people may be saying, look, I saw another realtor get that six-figure income. Maybe I can be that.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
It's very welcoming that many other countries, especially developing country, they come to NAR to say, how do you work? We want to have more orderly system. We don't want the total chaos in the marketplace. We don't want people getting ripped off. How does the multiple listing service work? What is your ethics rules?
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
So we are happy to share all this with other countries who wants to know how the United States system works.
Freakonomics Radio
618. Are Realtors Having an Existential Crisis?
The real estate profession is one of the most competitive out there. It's almost like economic textbook definition of perfect competition.