Kickbacks, Specialization, Price Fixing, and Efficiency in Residential Real Estate Markets

Owen, Bruce M.

doi:10.2307/1228140

Cited by 33 publications

(8 citation statements)

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“…A long record of investigations, antitrust settlements, and prosecutions for covert conspiracy suggests that informal local price-fixing remained common in the industry for some time, however. (Federal Trade Commission, 1983, p. 24; see also Owen, 1977. ) Collusive arrangements tend to be unstable since every member of the cartel has an incentive to cheat on the agreement.…”

Section: Collusionmentioning

confidence: 99%

Residential real estate brokerage as a principal-agent problem

Anglin

Arnott

1991

J Real Estate Finan Econ

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We analyze the terms of the brokerage contract between a house seller and his agent, using the established literature on the principal-agent problem. Considering the influence of moral hazard and adverse selection, we predict a number of features of the contract. Many of these features are not present in observed contracts. To account for this discrepancy, we discuss certain aspects of the real estate market which are not included in the standard principal-agent model but may explain the difference. Standard principal-agent theory neglects important contract design considerations, namely robustness and costs of complexity. In general, the commission contract performs poorly by failing to allocate risk efficiently or to provide agent incentives. It favors established agents and precludes contractual diversity. Finally, we contrast the brokerage contract for real estate with the dealership contract for used cars, but find no compelling answer as to why there are few used house dealers.

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Section: Collusionmentioning

confidence: 99%

Residential real estate brokerage as a principal-agent problem

Anglin

Arnott

1991

J Real Estate Finan Econ

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“…Recognition that it is the net commission cost that influences the seller's decision to list with a broker may explain why gross commission rates generally have been found to exhibit so little variation on residential sales (see, for example , Federal Trade Commission 1984 andOwen 1977). Broker's usually don't compete on gross commission rates since the gross rate is irrelevant to the seller's decision.…”

Section: Real Estate Agents and The Market For Housingmentioning

confidence: 99%

“…A number of studies (see , Federal Trade Commission, 1984;Gresham, 1974;Owen, 1977;Villani and Simonson, 1982;and Yinger, 1981) have examined various aspects of the broker's role in the housing market, but empirical evidence on the impact of the brokerage system has been limited. Because brokers deal with both buyers and sellers, it is reasonable to expect that both the price and the demand for housing will be different in the broker-assisted segment of the market.…”

Section: Introductionmentioning

confidence: 99%

Real Estate Brokers, Housing Prices, and the Demand for Housing

Jud

Frew

1986

Urban Studies

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This study examines the role of real estate brokers in the market for residential housing. It is shown that brokers obtain higher prices for the homes they sell and implicitly shift part of the brokerage-commission burden to the buyer. Evidence also is found to suggest that buyers who search the housing market with the assistance of a real estate broker have a higher demand for housing than buyers who shop the housing market without the help of a broker. Real estate agents thus appear to be salesmen for the housing industry and to generate effects very similar to that of advertising.The authors are in the lThe term Realtor(R) is a registered trademark of the National Association of Realtor(R). 2The effects of the brokerage industry reported in this study stem from the lack of information in the housing market. The brokerage industry in our view represents a market response to this lack of information. For another view which examines the brokerage industry from the perspective of a monopoly pricing model, see Wachter (1985).

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“…The absence of much variation in broker commissions across regions of the country is a longstanding and unsolved puzzle (Owen, 1977;Wachter, 1987). The antitrust authorities, among others, have been concerned that the commission rate may reflect collusion at the national or at least the local level (Federal Trade Commission, 1984;.…”

Section: Future Researchmentioning

confidence: 99%

For sale by owner: When to use a broker and how to price the house

Salant

1991

J Real Estate Finan Econ

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By using a broker, the owner of a house can speed up his search for buyers but must pay a percentage of the sale price as a commission. Nonstationarities inherent in the housing market may make it optimal to market a house "by-owner" at the outset and to retain a broker only if the house remains on the market later in the selling season. This article investigates the optimal sequence of asking prices within the by-owner phase, within the broker phase, and at the transition between the two phases. The asking price declines within each phase but may jump up at the transition to cover part of the commission. The model implicity determines the demand for broker services as a function of the commission rate. When estimated, it may be useful in investigations of price fixing among brokers.

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Kickbacks, Specialization, Price Fixing, and Efficiency in Residential Real Estate Markets

Cited by 33 publications

References 0 publications

Residential real estate brokerage as a principal-agent problem

Residential real estate brokerage as a principal-agent problem

Real Estate Brokers, Housing Prices, and the Demand for Housing

For sale by owner: When to use a broker and how to price the house

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