The Impact of Specialization on Residential Real Estate Licensee Income

Abstract

While there has been a great deal of research into the factors determining residential real estate agent/salesperson/broker income, little attention has been directed at how this income is generated. Numerous authors [ including, but not limited to, Follain, Lutes and Meier (1987), Glower and Hendershott (1988), Crellin, Frew, and Jud (1988), Abelson, Kacmar, and Jackofsky (1990), Sirmans and Swicegood (1997), and Jud and Winkler (1998) and Sirmans and Swicegood (2000)] have found that factors such as experience, education, firm size, and hours worked positively impact agent earnings. These studies assume, if only implicitly, that brokers are indifferent as to the way this income is produced, whether from listings or from the sale of other agents' listings. This, in fact, may not be the case. It may be that certain activities have greater income producing potential than other types of actions, here categorized as listing versus selling. That is, the effort spent in generating property listings may prove more productive than the same amount of effort spent trying to locate and market properties to buyers. On the other hand, specializing in selling could prove more cost effective and profitable than prospecting for listings. If these conjectures are true, then we should expect specialization in sales activities provides the greatest potential for income production. Agents are not all created equally. Those salespeople who have the talent or skills set that makes them more effective at listing may also earn more than agents specializing in sales or vice versa. Alternatively, a balanced output of both listing and sales may prove optimal. Unfortunately, there is very little empirical research available to support any of these suppositions. Zumpano, Elder, and Crellin (1993) along with Zumpano and Elder (1994) did find the presence of firm level economies of both scale and scope in the residential real estate industry. As firms grow in size the resulting increase in workforce allows agents to specialize in listing or selling, providing more effective utilization of sharable inputs such as equipment, office staff, and the multiple listing service (MLS) that, in turn, allows for more co-op and in-house sales, and, hence, a more balanced, aggregate production of both listing and sales at the firm level. Is this true for individual agents' income? Or, is it possible that agents and firms, while both seeking to maximize their gains, do so in a different manner. The purpose of this research is to examine whether or not specializing in one side of the real estate transaction, or a balanced production of both significantly, differentially affects agent income. We hypothesize, that due to the interaction of the exclusive nature of listing agreements, Multiple Listing Service (MLS) participation, current institutional arrangements, and the logistical problems of working with multiple buyers at one time, it may be more beneficial for a broker to specialize in listings. Quite simply, a salesperson with ten listings in a given time period has a greater probability of generating a sell via MLS showings than a broker working with 10 buyers in the same time frame. Therefore, all else being equal, the broker that specializes in listings should have a greater expected income than the broker that specializes in selling property to buyers.