Diffused effort, asset heterogeneity, and real estate brokerage

Abstract

We generalize the classic Williams (1998, Review of Financial Studies, 11, 239–280) brokerage model by introducing diffused effort and asset heterogeneity. The term “diffused effort” refers to the fact that an agent can cross‐utilize effort spending on one listing to another . One counterintuitive finding in Williams' paper is the absence of the agency problem . As a special case in our model, we recover the agency problem. We demonstrate the positive externality due to the diffused effort and show it depends on the agent's inventory size. Hence, there is a trade‐off between agents' effort committed to existing listings and expanding network size by soliciting new listings.

Optimal Real Estate Pricing and Offer Acceptance Strategy

“…The probability distribution of the maximum offer is affected by the number of offers accumulated during the time period and the distribution of each individual offer. It is common in the literature to assume that stochastic arrivals of potential buyers are independent, and that the strength of the market demand can be represented by a Poisson process, that is, assuming that the offers are drawn from a countably infinite population [2], [27], [28], [29], [30], [31], [32]. We assume also that the individual offers of potential buyers are generated from a known probability distribution that reflects the market valuation on the property [2], [28], [29].…”