below is the link to Austan Goolsbee's The zero-profit condition .. The link at the bottom is where I copy and paste the following.

Let me know what you think about this issue.. Keep in mind this is a claim by one man named Austan Goolsbee; I don't know if this is biased on the myth that real estate agents make to much money or that there is a jealously about the fact that a real estate agent can make as much as a person who went to school for many years and the real estate agent just had to spend a few hundred dollars, I just don't know. ( we all know us agents work just as hard for our money )

what do you think about this article.

Bubble-lusions
Why most real-estate agents aren't getting rich.
By Austan Goolsbee
Posted Friday, Aug. 26, 2005, at 1:20 PM ET
During most of history's great economic bubbles, only a few people made a mint from the bubble itself. Instead, it's often the people supplying the bubble's participants who stand the best chance of reaping profits that last after the good times end. That's the lesson of the 1849 gold rush, during which Levi Strauss sold blue jeans to miners and made a fortune far greater than any of his customers.

The current housing bubble—prices have doubled in the last four years in hot markets like Boston, Washington, D.C., and parts of California—is breeding a lot of would-be Strausses. One seemingly obvious path to riches is to become a real-estate broker. For many decades, agents have successfully kept their payments steady as a fixed share of the value of the houses they sell. In most cities, the rate is around 6 percent, split between the buyer's and the seller's agents. The lack of price competition has attracted the notice of anti-trust authorities at the Justice Department who are planning to sue the National Association of Realtors over some of their anti-discounting policies. Economically speaking, it's hard to explain why the steady commissions have lasted so long—perhaps agents band together to blacklist competitors who undercut prices, or perhaps the NAR's extensive "education" program for realtors excels at indoctrination.

Whatever the explanation, the realtors' reliable cut of 3 percent each means that the housing bubble should be all upside for them. If house prices double, then agents make twice as much. Sell a house for $500,000 and keep $15,000; sell the same house for $1 million and keep $30,000. The agents are Levi Strauss without the copper rivets.

There is just one problem with this—a principle that economists term the "zero-profit condition." In a business with free entry, new participants will keep entering until no money remains. And becoming a real-estate agent is almost free. Most states require applicants to take a short class and a test to get a license. For $99, an online company will prepare you to pass. This kind of entry into the housing market is a lot cheaper than, say, building a steel mill. Every month, thousands of new brokers get certified—more than 8,000 in California in May alone.

With all these new agents swarming onto the scene, the price they charge may remain constant, but the number of houses each sells will not. The zero-profit condition predicts that, in locales where housing prices rise, the number of agents will also rise, and acquiring new clients will become that much more difficult. The occasional star agent will always make a bundle. But the theory suggests that the average agent won't make much more in places where house prices have risen than in places where they haven't.

A recently published study bears this out. Enrico Moretti and Chiang-Tai Hsieh of the University of California, Berkeley, studied the real-estate agent business in 282 metropolitan areas during a 10-year period. They compared agents in inflated markets to agents in flat-lining markets and found overwhelming evidence of the zero-profit condition in action. When housing prices rose, the number of agents did as well, and this, in turn, reduced the number of houses each agent sold by almost exactly the same proportion as the price increase. In Moretti and Hsiesh's data, for example, houses cost 5.9 times more on average in San Francisco than they do in Steubenville, Ohio. But the average full-time agent working in Steubenville sells more than 22 houses per year, whereas the same agent in San Francisco sells less than one-fifth as much.* The average income for real-estate work in the two locales is virtually identical. Moretti and Hsieh found that the direct correlation between housing prices and agent productivity held true across all markets. A rise in housing prices in an area has no significant impact on the average wage of the brokers in that market. It's the oldest line in the economics book: No barriers to entry mean no big profits.

So, you probably can't become the Levi Strauss of real estate by hanging out your broker shingle, no matter how high the housing prices climb where you live. If you want to make money off the housing bubble, you'll have to do it the old-fashioned way: Buy a place with a no-money-down mortgage and then flip it.

*Correction, August 29, 2005: This sentence was initially worded "the same agent in San Francisco sells fewer than 4-5.7 times less." The author meant to say that the same agent in San Francisco sells less than one-fifth as much. Click here to return to the corrected sentence.

link to above article
http://www.slate.com/id/2124506

First off, agent and broker are not interchangeable entities so that shoots quite a few holes into the validity of the article itself for me.

I won't dispute the resources or the studies quoted but I would say the writer is not representing all the facts.

Why?

Because the additional factors of doing business are not calculated or represented in the article. On average only a few transactions are home runs (agent gets both sides of the commission) and even then there are fees to be paid out of the sale: Broker fees, etc. Not to mention the costs for advertising and what not.

We all know agents make too much money on every sale... Yeah Right, I've got a bridge for sale wanna buy it?

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Jessie: Panama City Beach Real Estate, Panama City Real Estate and Panama City Beach Condos

Well there is no shortage of people trying to make it rich off Real Estate Agents that is for sure. I wish I had a dollar for every person that calls me to sell me stuff.

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I think the problem with the article is the fact that he did not account for how many people who have a real estate license that don't even work. and lots fail in the first year.. So its easy to get the license, its the easiest part of real estate, the business is the real challenge. So I'm sure many people who think wow this is easy to get, find it hard to really make money.

He does have a point if he is accurate in saying that real estate agents are not making more money as time goes on, despite the huge gains in home prices. But maybe he was seeing gains in income, but just not proportional to the home price gains.

But nevertheless the longer you are in the business the more money you make, and that is what we need to look at, not how much the average agents are making.

Everybody is an expert, especially those trying to get rich telling me what I am doing wrong.

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No matter what industry...the 80/20 rule ALWAYS applies...80% of the business is done by 20% of the sales people.

Why is it that people think we make too much money and the first thing they ask is "will you cut your commission"...Would that same person ask a brain surgeon to cut their fee? I truly believe people don't really understand what goes on "behind the scenes". My buyers and sellers usually don't know if there is a problem because I take care if it so they don't stress out...I'm the one stressing...Here's what I ask/tell a seller if they ask me to cut my commission (assuming they have equity)...I tell them I will sell their property for FREE...they just have to split the profit with me. Gets a laugh every time.

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I had a friend comment once that I was just a chaffeur. uh huh.

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I met someone today who was trying to tell me that his $400,000 condo is worth $450,000 because of his upgrades, and the $450,000 home i was trying to sell (way under comps) was worth $400,000 because the market is bad and there were not enough ceiling lights.

do people really think that they can do an even trade on an 1100 sq ft condo for a 1700 sq ft house and not incur expenses?

NEXT!

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The article has some very valid points. During good times more Realtors enter the market. During bad times Realtors leave. So the end result is that the average income should be theoretically the same. However, no market is perfect and there are entry and exit costs. Thus the average Realtor tend to do better in good times and suffer in bad times.

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I wish my home price doubles and I will be happy to be the same 3%

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