The Effect of State Licensing Regulations on the Real Estate Brokerage Industry

Abstract

An argument is often made that occupational licensure protects members of the regulated industry by limiting supply and raising earnings. The purpose of this study is to examine entry barriers within the real estate brokerage industry and to determine the effect of differing state entry requirements on the supply of practitioners, earnings, and quality of service provided. A simultaneous system of equations is developed where the number of licensees per capita, earnings, and quality are jointly estimated. Two‐stage least squares results support the premise that the consumer rather than the industry benefits from real estate prelicensing regulation with a higher quality of service. Significant evidence is not found to support the idea that the real estate industry regulations are self‐serving.