Real Estate Brokers and Commission: Theory and Calibrations

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The author constructs a theoretical model to examine the effects of an inherent conflict of interest between a seller of a house and the real estate broker hired by the seller. The model is then used to calibrate the broker's commission rates that would maximize the seller's expected gain. The findings suggest that while the pressure brokers exert on sellers to reduce prices generates faster sales and hence improves social welfare, the usual commission rate of 6 percent exceeds the seller's value-maximizing rate if the sale is handled by a single agent. On the other hand, if several agents (such as the buyer's and seller's brokers and the agencies that employ these realtors) split the commission, then a 6 percent commission rate may be required to motivate the broker to sell at a high price. Terms of use: Documents in EconStor may

Price Signals and Uncertainty in Commercial Real Estate Transactions

“…The literature on residential real estate brokerage is expansive. Studies range from examining barriers to entry in the brokerage business (Hsieh and Moretti 2003), to how hard brokers work (Benjamin et al 2004;Goodwin et al 2012), to potential conflicts of interest when brokers act as principals (Bian et al 2017;Kadiyali et al 2014) or dual agents (Han and Hong 2016;Johnson et al 2015), to how commissions rates are determined (Shy 2012;Wiley et al 2014). Many other brokerage topics have been explored in the residential real estate setting as well, often with conflicting results.…”

Real Estate Agent Commission Disputes

“…This commission percentage includes the agent's expertise in setting the list price, advertising the property through a local Multiple Listing Service (MLS), negotiations with the buyer's agent, and a wide variety of services to help the customer competitively market the property (NAR, 2013). The nationwide average commission for an agent is 6%, which is split equally between the selling and buying agents (Shy, 2009). However, some agencies may attempt to keep listings internal (in house) to avoid sharing the 3% with another brokerage firm (Frew, Jud, & McIntosh, 1993).…”