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Can NY Real Estate Agents be Blamed for Promoting Inequality?

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By: Benyamin Davidsons

A new book is coming out which will point a finger at real estate agents. The book, Upsold: Real Estate Agents, Prices, and Neighborhood Inequality, contends that real estate agents play a part in breeding inequality and expanding the gap in quality of life between New York’s upper and lower class neighborhoods. “Agents’ work in shaping buyers’ choices leads to upselling,” writes author Max Besbris, referring to when brokers influence homebuyers to spend more than their predetermined budget. “Repeated in aggregate, these practices create positive feedback loops that drive up prices in more expensive neighborhoods.”

As per a recent article by Bloomberg, the forthcoming book, which will be out at the end of August, being published by the University of Chicago Press, includes data based on years of research dating back to 2011. In it the author writes, that since real estate agents work on percentage commission, they have an interest to sell higher priced properties.  They therefore push homes in upper class areas, even if it is above the prospective buyer’s stated budget.

This leads to further enriching rich neighborhoods, sometimes at the expense of other neighborhoods.  This also works to further drive up prices in these already booming areas, which they continue to push so as to enrich themselves.  The author says that this phenomenon promotes inequality because these rich areas will continue to bring in more well-to-do residents, thereby winning better schools, parks and infrastructure, bettering their standard of living and further increasing the gap between NY’s classes.

“Right now, social scientists are really interested in various kinds of inequality in cities,” Besbris tells Bloomberg Pursuits. “I’ve used these statistical models, which show that neighborhoods which have more real estate agents tend to be higher-priced neighborhoods and also tend to be way more ethno-racially segregated.”

Real estate brokers, “will tell you themselves that they act as neighborhood boosters,” Besbris says, they push clients to buy in areas where the agents are already invested in. “That’s their job. They want the area to be marketable and valuable,” he says.  Since “Whiter neighborhoods tend to have more real estate agents,” Besbris continues,  brokers inevitably push clients to spend increasingly large dollar amounts in specific neighborhoods at the detriment of others areas.

As a result, the brokers end up facilitating increasing amounts of wealth to be poured into several select neighborhoods. Based on incentive, real estate agents choose to work in neighborhoods with high sales volume. Further, the worst part of the inequality comes in with “steering,” which is when an agent pushes clients toward “particular kinds of neighborhoods, based on the race of their buyer and the racial and socioeconomic composition of a neighborhood,” Besbris says.

While none of this is exactly novel or surprising, the book is the first to place the blame on the agents.  The author concedes that he can’t prove that the brokers are first in line to be blamed for the well-known and long standing phenomenon.  He also admits that “there are a lot of reasons why prices go up and inequality is going up.”  Still he holds that, “Agents are actors, not just passive people benefiting from this,” he says. “What my work shows is that they’re working in concert with other factors to keep prices moving up.”

By consciously influencing buyers’ decisions, he says, “they’re affecting neighborhood inequality.”  Nonetheless, the author clarifies that he has nothing against using a broker.

“Agents do serve a function for most people, and they’re generally worth the cost. We give them a set of parameters, and they spend time searching on our behalf.” Still Besbris says, “I do believe that some of these inequalities would be reduced if we were not using so many intermediaries who have an interest in making more, higher-priced sales.  But this inequality is entrenched—and the product of a lot of socio-historical processes that are ongoing.”

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