Information distortion of real estate investing

A point that we’ve got from real estate book, that Real estate transactions provide an unusually attractive setting to test the impact of information distortion by experts. Unlike many experts (e.g. surgeons), real estate agents not only provide their services to clients, but also sell their own homes. When a real estate agent sells his own home, he is residual claimant on the full surplus from the sale and thus has optimal incentives. By comparing sale prices and time on the market for homes where the agent is hired by a client versus when the agent sells his or her own home (and controlling for other factors), we have to learn real estate book in more details.

Using a data set of nearly 100,000 home sales, of which roughly 3,300 are agent-owned, we find that, even after controlling for a wide array of house and neighborhood characteristics, agent-owned homes sell for about 3.7 percent (or roughly $7600 at the median sales price) more than comparable houses and stay on the market an extra 9.5 days (about 10 percent) longer, even after controlling for a wide array of house and neighborhood characteristics. Although a price difference of $7,600 is large for the consumers, the real estate agent’s personal share of that sum  is only $114. It does not seem unreasonable that a self-interested agent would be willing to forego $114 to avoid having a client’s home on the market an additional ten days. This basic result is consistent with information distortion on the part of agents, but also with other competing hypotheses. For instance, real-estate agents own homes that systematically differ from those of their clients in ways that make them sell slowly, but at high prices. It is always difficult to rule out stories about unobservables. real estate book provides more than enough informations about real estate, all we have to do is arrange good strategies in investing on real estate.

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