Buyers “Always Spend More Than They Think They Will; They Just Don’t Know It Yet”

Consumer preferences are made, not chosen. At least in housing markets when buyers work with real estate agents, as most do, those agents often shape or at least significantly change the units their clients ultimately buy and the neighborhoods they land in. One prominent effect, as Max Besbris shows in Upsold: Real Estate Agents, Prices, and Neighborhood Inequality, is that buyers routinely pay more, often considerably more, than their initial price ceiling as a direct result of interactions with their agents. A more important outcome is that neighborhood inequalities are heightened, as are racial wealth disparities. This provides further evidence that market transactions are not the result of rational, utility-maximizing decision-making proffered by the neoclassical model expounded by most economists. Particularly where informational asymmetries exist—as is the case in housing, where most households may purchase two or three homes in a lifetime, but agents deal with such transactions daily—buyers are dependent on the ‘‘experts’’ they are hiring to help them make the best decision. Buyers depend on agents primarily because they believe their agent knows details of properties they visit, amenities of neighborhoods, property values and likely changes in home prices, and all relevant characteristics of the housing market generally. And this belief is nurtured by real estate agents. While more house-hunters today use online services like Craigslist, Zillow, and Redfin, among many others, agents are quick to point out frequent inaccuracies, particularly the price, in their communications. And as one agent observed, a computer algorithm cannot tell you what is under the new floorboard. Another noted that agents can tell you where the best bakeries are, and how many bakeries there are in a neighborhood. Agents also convey their superior knowledge about recent sale prices and projected future (always upward) prices of the homes they are showing. And they share far more than factual information. As one agent told Besbris, ‘‘I’m a mother, a therapist, a cheerleader, an interior decorator, a financial advisor’’ (p. 54). But perhaps their greatest skill is their ability to separate buyers from their money. The key evidence presented in Upsold is drawn from the interactions Besbris observed between 12 agents and 57 buyers in New York (primarily Manhattan and Brooklyn) over 27 months beginning in January 2012. He observed initial meetings of agents and buyers, visits to housing units that were available, and meetings where they developed offers they were going to make. He also interviewed another 45 agents in other cities across the state. Of these, 25 came from a randomized list of licensed agents in the state and the rest came from personal contacts and snowball sampling. (It might have been interesting to see if there were any differences in what he was told by these two separate lists.) He interviewed 21 of the buyers who made offers and conducted follow-up interviews with most four or five years later. He conducted quantitative analyses of the agents’ office Upsold: Real Estate Agents, Prices, and Neighborhood Inequality, by Max Besbris. Chicago: University of Chicago Press, 2020. 221 pp. $33.99 paper. ISBN: 9780226721378.