Commission Splits in Real Estate Transactions

Bian, Xun; Waller, Bennie D.; Yavaş, Abdullah

doi:10.1007/s11146-015-9541-0

Cited by 7 publications

(3 citation statements)

References 22 publications

(37 reference statements)

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“…They find that houses listed by discount brokers sell for the same prices as other houses, but are less likely to sell, and stay about three days longer on the market. Bian, Waller and Yavas () examine commission splits between listing and selling agents and show that an additional agency problem arises when the listing agent sets the commission split. Li and Yavas () study an agency model of real estate brokerage with multiple agents, and find that, from a social planer's perspective, the current commission rate of 5–7% is too high and the commission split is too much in favor of the seller's agent.…”

Section: Literaturementioning

confidence: 99%

Who Is “Misleading” Whom in Real Estate Transactions?

Xie

2017

Real Estate Economics

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The observation that real estate agents sell their clients' homes cheaper and faster than their own homes has been well identified in the literature and interpreted as evidence of an agency problem originated from information asymmetry. This article studies whether this well‐known result holds true for all types of agents and clients, and whether information asymmetry is the full story. By using the Multiple Listing Service (MLS) data from Indiana, we find that, after controlling for observables, mainly homes owned by institutional clients are sold cheaper and faster than agent‐owned homes, and the differences are mainly driven by less and moderately experienced agents. Besides information asymmetry, we also find evidence of motivation heterogeneity—institutions themselves are very motivated to sell, and therefore are willing to sell cheaper in order to sell faster.

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Section: Literaturementioning

confidence: 99%

Who Is “Misleading” Whom in Real Estate Transactions?

Xie

2017

Real Estate Economics

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“…The only shift is when price points were too low to generate any significant percentage-based commission. Most recently, Bian et al (2017) became the first to examine listing agents' incentives to set commission splits, also known as the cooperative commission. They found that listing agents tend to offer a lower commission split when listing a more expensive property and that listings with higher list prices and quick sales tend to have lower cooperative commissions.…”

Section: Introductionmentioning

confidence: 99%

“…The only shift is when price points were too low to generate any significant percentage-based commission. Most recently, Bian et al . (2017) became the first to examine listing agents' incentives to set commission splits, also known as the cooperative commission.…”

Section: Introductionmentioning

confidence: 99%

Examining potential biases related to brokers' cooperative commission in multi-unit residential investments

Rodriguez

2022

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PurposeInvestors often utilize brokers to assist them in property acquisitions. These brokers are compensated through a cooperative commission, or bonus, that is publicized on the listing service. The purpose of this paper is to determine the relationship between advertised compensation packages and selling price, time-on-market and listing characteristics.Design/methodology/approachTo examine variables likely to influence earnings of the buyers' broker, this study utilizes multiple and logistic regressions. Given the range of prices found in the 196,276 listings, the data was sorted on listing price and then split into ten, approximately equal, deciles.FindingsThe explanatory power of models with cooperative commission as the dependent variable was highest in the lowest deciles with type of financing, size and distressed status being highly significant. When comparing list- to selling price the average was 96.1%. As cooperative commission increased, the higher priced parcels sold at a higher price relative to list price. This potentially justifies higher cooperative commissions or exemplifies the principal-agent problem where effort is based on potential earnings. Fixed bonuses were used predominately for parcels under $62,234, likely to provide a minimum earnings amount. However, surrounding the median, it seems they may differentiate a property.Practical implicationsThis research provides insight for practitioners on the impact of different variables, including cooperative commissions, on sale price and time-on-market. For example, cooperative commission increased for properties in the outer deciles implying that agents may be compensating for suspected difficulty. Additionally, the seasonality findings imply that agents can determine when to list and when to provide a fixed bonus to solicit attention. Results also suggest that practitioners will find it beneficial to market at an appropriate price rather than list high to create negotiating room.Originality/valueThis paper follows only one paper that covered a similar topic. However, this paper uses twenty years of multi-unit property listings from a major US city from 1996 to 2015. The focus on multi-unit properties is an effort to focus on a more sophisticated group of buyers that may be more experienced and make decisions more rationally.

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