Schnare and Kulick Find Evidence of Competition in Realty Services Market

May 27, 2008

In a study released today, Criterion affiliate Ann Schnare and Robert Kulick examined the state of competition in the real estate industry. Dr. Schnare and Robert Kulick provide up-to-date empirical evidence that can be used to assess some of the issues that have been raised by critics of the industry, who have claimed that "traditional" full service brokers have restricted competition from discount and limited service providers to maintain artificially high commission rates.

Schnare and Kulick argue that the debate has been largely waged on anecdotal grounds and that relatively little is known about the current structure of commission rates or the relative importance of alternative service models. Their study covers a variety of topics, including:

• The current structure of the industry;
• The emergence of alternative service models;
• Consumers’ attitudes towards traditional and alternative brokerage services, including how they use and value the Internet; and
• Recent trends in commission rates.

In general, Schnare and Kulick find that commission rates vary within markets, across markets and over time—a finding that directly contradicts the notion of a "fixed" commission world that has been posited by industry critics. They also find that commission rates vary with the strength of the local housing market, the value-added of real estate agents, and other factors affecting the underlying demand and supply of brokerage services. These patterns are what one would expect to see if real estate agents compete on price.

Schnare and Kulick posit that some critics undoubtedly will look at the evidence that their study presents and conclude that a given change or particular variation in rates is not enough to justify a conclusion that the brokerage market is "fully" competitive. They argue that such matters of degree are difficult to assess. At a minimum, however, they contend that their findings challenge the basic premise of a fixed commission world that underlies the arguments of many critics today.

To read the study in full, click here.