Brokers’ contractual arrangements in the Manhattan residential rental market

Abstract

We bring new evidence to bear on the role of intermediaries in frictional matching markets and on how parties design contracts with them. Specifically, we examine two features of contracts between landlords and agents in the Manhattan residential rental market. In our data, 72 percent of listings involve exclusive relationships between landlords and agents (the remaining 28 percent are non-exclusive); and in 21 percent of listings, the landlord commits to pay the agent's fee (in the other 79 percent, the tenant pays the agent's the fee). Our analysis highlights that these contractual features reflect landlords' concerns about providing agents with incentives to exert effort specific to their rental units and to screen among heterogeneous tenants. * We are grateful to MLX and LaLa Wang for providing the data used in this paper; to David Genesove, Lu Han, Raffaella Sadun, Will Strange, the editor, Stuart Rosenthal, and three anonymous referees for helpful comments; to Yunok Cho and Tobias Salz for help with the research; and to Marcee Bar-Isaac for unstinting patience with interminable institutional queries.

How Much Do Investors Pay for Houses?

“…1212In a recent contribution, Bar‐Isaac and Gavazza (2015) show a link between the atypicality of Manhattan apartments and the choice of the contractual arrangement under which brokers are asked to market the properties for rent. Landlords are more likely to sign exclusive agreements with agents for atypical apartments, where presumably more effort is needed to find a tenant.…”