Real estate agents sell houses for a living. Every so often, one of them sells their own.
That gave the economists Steven Levitt and Chad Syverson a rare comparison. In the same market, they could set the homes agents sold for themselves beside the homes agents sold for clients.
They gathered about 98,000 sales of single-family homes in 34 suburbs of Cook County, Illinois, from 1992 to 2002. In about 3,300 of them, the seller was a real estate agent.
After allowing for each house’s features, the agents’ own homes stayed on the market 9.5 days longer. They sold for 3.7% more, roughly $7,700 at the median price.
The authors were careful about what this comparison could show. Agents’ homes might still differ in ways the data couldn’t see. But if they were simply nicer in hidden ways, that would explain the higher price, not the slower sale.
The authors’ explanation starts with the commission. A seller’s agent typically keeps only about 1.5% of each extra dollar the house fetches; the rest of the commission goes to the agent’s firm and the buyer’s side. On a $300,000 house, holding out for 3.7% more is worth about $11,100 to the seller. The agent’s share of that is about $167.
The economists tested one more prediction. If the gap comes from agents knowing more than their clients, it should shrink wherever clients can find things out for themselves.
It did. On blocks where the houses were all alike and easy to compare, agents got only 2.3% more for their own homes, and their time on the market was not significantly different. On blocks with a mix of houses, they got 4.3% more. And the gap narrowed over time, from 4.9% in 1992 to 1995 to 2.9% in 2000 to 2002. Those were the years the internet put listings and recent sale prices within reach of ordinary sellers. The authors read the narrowing as a sign that the gap came from what agents knew and clients didn’t, and that it shrank as clients could look more up for themselves.