In 1990, a typical house in Boston cost roughly twice as much as a typical house in Minneapolis. Since commission rates were fixed, an agent would earn twice as much selling a house in Boston. But the Boston market, with so much more commission money up for grabs, attracted many more agents than Minneapolis did -- even though it turned out that more homes were actually being sold in Minneapolis.  The result? The typical Minneapolis agent sold twice as many homes (6.6 per year) as the typical Boston agent (3.3 per year) -- which left the Boston agent, despite the higher prices in her market, no better off than her Minneapolis counterpart. What should be a competitive marketplace -- which would inevitably lead to lower prices -- is not, since the price of the agents' service is essentially fixed in place.  The N.A.R.'s own figures show the same dynamic at work today, nationwide. From 2002 to 2004, during one of the hottest real-estate markets in American history, the median income for Realtors actually fell -- to $49,300 from $52,200. This is not to say that some agents haven't become rich. As in most sales professions, whether the product is diamond rings or crack cocaine, the people at the top of the pyramid make an awful lot more money than those down below. It's just that the base of the real-estate agent pyramid grows significantly during a boom.  And because hungry new Realtors are discouraged from undercutting their competitors by lowering their commission, they compete instead by frantically trying to obtain new listings. This would explain why your mailbox is jammed with postcards from Realtors exhorting you to sell. Most real-estate agents seem to spend 95 percent of their energy chasing clients (for which they are paid nothing) and 5 percent actually serving them (for which they are paid way too much).  The second reason to feel bad for real-estate agents is even more dire: their very profession is about to join the endangered-species list.  Think back for a moment to 1999. Travel agents still roamed the earth in vast numbers. So did stockbrokers. But their business models were being blown apart, largely by the Internet. The new market for do-it-yourself online securities trading lowered fees so drastically that a full-price stockbroker could simply no longer earn a living. Travel agents were shoved aside once the Internet gave customers the ability to book their own trips -- and when, perhaps more damagingly, the airlines decided to stop paying the travel agents' commissions.  The Internet is a natural repository for the sort of data that drive the real-estate market. New sites like zillow.com let anyone try to figure out (if imperfectly) what his home is worth; sites like craigslist.org allow buyers and sellers to easily find each other. As those services and ones like them become more popular, it is hard to imagine that the market will allow Realtors to maintain their hefty commissions.  There will always be some home sellers who prefer full-service, full-fee agents, and a handful of these high-end agents will undoubtedly thrive (just as some full-service travel agents and stockbrokers still thrive, except they are now called "travel counselors" and "financial planning specialists," respectively). But more and more home sellers, armed with data from real-estate Web sites and facing a variety of pricing options, will surely choose another route.  In addition to discount and flat-fee brokers, one likely successor is the fee-for-service broker. Cary and Barbara Chubin, a married couple who just relocated from Chicago to Oakland, started up this kind of business in Chicago. They charged $750 to list a home on the Multiple Listing Service, $50 an hour for showing the home and $250 for negotiations and closing. Younger home sellers flocked to the Chubins' pricing model; but older customers, Cary Chubin recalls, were leery. Chubin understands. "People can't believe it could be so much cheaper than they're used to paying," he says. "Plus, a home is the most valuable asset most people have, and you're afraid to death of making a mistake."  Fear may be a great motivator for maintaining the status quo, but the Chubins say they believe they have found an even better one: money. That's how Barbara Chubin plays the game in her advertising: "Do you want to go to the Caribbean? Or would you rather give the money to your real-estate agent?"  THE WAY WE LIVE NOW: 3-05-06: FREAKONOMICS Stephen J. Dubner and Steven D. Levitt are the authors of "Freakonomics: A Rogue Economist Explores the Hidden Side of Everything." More information on the research behind this column is at www.freakonomics.com.
Stephen J Dubner and Steven D Levitt column says real estate agents have not profited as much as one would think from rise of housing prices in recent years, mainly because a boom lures a lot more people into the business, cutting down on number of sales each agent can make even as commission earned on each sale rises; says Internet and other forces are also exerting pressure that will drive down agents' commissions and even drive them out of business (L)