Do Real Estate Brokers Add Value When Listing Services Are Unbundled?

Abstract

This paper measures the effects of real estate brokerage services provided to sellers, other than MLS listings, on the terms and timing of home sales. It is not obvious that sellers benefit from those services. On the one hand, brokers offer potentially useful knowledge and expertise. On the other hand, because the relationship between the homeowner and the broker resembles a classical principal-agent problem, the broker may not deploy services in ways that promote the seller's interests. Yet as long as valuable MLS listings are bundled with brokerage services, homeowners may use brokers even if the agency costs exceed the benefits of brokers' knowledge and expertise. Thus, quantification of the net value of brokerage services other than MLS listings bears directly on the recent policy debate over the desirability unbundling of MLS listings. We estimate the effect of a seller's decision to use a broker on list prices, selling prices, and speed of sale for a real estate market with an unusual and critical characteristic: it has a single open-access listing service that is used by essentially all sellers, regardless of whether they employ brokers. Our central finding is that, when listings are not tied to brokerage services, a seller's use of a broker reduces the selling price of the typical home by 5.9 to 7.7 percent, which indicates that agency costs exceed the advantages of brokers' knowledge and expertise by a wide margin.

Real-Estate Agent Commission Structure and Sales Performance

“…Table 5 lists the results for the list prices. In line with the results presented in Bernheim and Meer (2013), we find that the lower selling prices can be completely explained by the lower list prices. Table 6 suggest that some of the other broker characteristics are also important for sales time.…”

“…We are hardly the first to point this out; see for example, Levitt and Syverson (2008a) and Bernheim and Meer (2013).…”

“…However, in contrast to Hendel et al (2009), but in line with our research, the Stanford study listed all campus sales on one single open-access listing service, which is available regardless of whether a broker is used or not. One caveat of the paper of Bernheim and Meer (2013) is that the number of observations is low and the Stanford housing market may not be representative for the total population because homeownership at the campus is limited to Stanford faculty and some senior staff. Nevertheless, an advantage of their analysis is that the sellers are a relatively homogeneous group, which reduces the risk of seller selection into FSBO sales.…”

“…Our paper is also related to Bernheim and Meer (2013), who look at houses sold at the university campus of Stanford. Similar to the paper of Hendel et al (2009), they compare FSBO sales with brokered sales.…”

Real-Estate Agent Commission Structure and Sales Performance

“…However, in contrast to other countries (such as the US), this has not caught on in a significant way (Hendel et al, 2009, andBernheim andMeer, 2013).…”