Economists Perplexed by Resilience of Real Estate Agents

The Internet, over the past ten years has transformed many traditional consumer markets, and real estate is no different. The arrival of global property websites like Lamudi have heralded a new age of real estate; introducing a level of convenience into what will be the largest, most daunting transaction of a consumer’s life.

However, the transition online has taken many prisoners with it; travels agents, car dealers, and even stock brokers, but for some reason, the estate agent remains strong. That is, despite the fact that the industry is speedily going online; according to the National Association of Realtors ninety percent of consumers start their property search online, and the percentage continues to build in the emerging markets.

It seems that agent’s commissions have remained relatively stable from 2002 to 2015.

In Mexico, where there is an emphasis on multiple listing services an agent can make up to 10 percent, and the average rate of 7.5 percent is the highest in the world and hasn’t changed in 13 years. In Indonesia, where a buyer’s broker is required for real-estate transactions the average commission went from 5 percent to 4 percent. The Philippines witnessed the same percentage drop; not bad for a thirteen year period that has seen large-scale technological changes.

So why have commissions remained stable? One hypothesis is that market efficiency is correlated with residential brokerage fees. So when GDP per capita increases, so does the number of sales per agent. Real estate classifieds have helped create market efficiencies by reducing the costs associated with traditional marketing and advertising.

An estate agent can efficiently manage a portfolio via a smartphone app and list thousands of properties without having to run a print ad campaign. This has meant commissions can remain stable.

Despite technological advances, the agent relationship to customers remains sacrosanct. “Nobody is going to buy a house of a robot,” said Dr Paul Philip Herman, co-founder of Lamudi. “We knew when we started our property listing business that having trusted agents would be a pillar of the business.” It seems people still want face to face advice when it comes to making the biggest transaction of their lives. While technology has provided more information and transparency at the starting point in the home hunt even to the extent you tour a place through virtual reality; it remains a long process, and the step-by-step guidance of a professional remains just as relevant now as it was ten years ago.

Interestingly, some startups have emerged that offer lower agent commissions, but they have failed to take off. When it comes to buying a home people are emotional, and the cost is so high that they turn to a professional to help them through the ordeal. Economists are going back to the drawing board to grasp the staying power of one of the world’s oldest services.