The Effect of Friendship on Decisions: Field Studies of Real Estate Transactions

Abstract

A field study of real estate agents' transactions demonstrates that business friendship affects the negotiation process and the outcome of transactions more for agents with 10 or more years of experience in real estate brokerage than for less experienced agents. Newer agents rely more on friendly relations and on impression management techniques to do well in a transaction, while the more experienced agents consider genuine business friendship and its norms useful for facilitating transactions. Different scripts for friendship may explain the consistency within each of the two groups. The study is part of the author's dissertation. It was funded by a grant from the Center for Real Estate and Urban Economics, University of California, Berkeley, California, 94720.The author wishes to thank the Berkeley real estate agents and brokers who generously offered their time and thoughts to this project. Thanks also to Bob Edelstein; to Laurie Kapitelli and William Porter, past presidents of the Berkeley Board of Realtors; and to Dan Ladd and Brian Mundell for their substantial contributions to the design of the survey and to the writing of this paper. This paper has not undergone formal review or approval of the faculty of the ILR School. It is intended to make results of Center research, conferences, and projects available to others interested in human resource management in preliminary form to encourage discussion and suggestions. The Effect of Friendship on Decisions WP 94-09Page 3 ABSTRACTA field study of real estate agents' transactions demonstrates that business friendship affects the negotiation process and the outcome of transactions more for agents with 10 or more years of experience in real estate brokerage than for less experienced agents. Newer agents rely more on friendly relations and on impression management techniques to do well in a transaction, while the more experienced agents consider genuine business friendship and its norms useful for facilitating transactions. Different scripts for friendship may explain the consistency within each of the two groups.

Constructing Deal Networks: Brokers as Network "Architects" in the U.S. IPO Market and Other Examples

“…Similarly, the nuances of syndicate design seem especially dependent on the existence of specific types of underwriters, such as large and diversified investment banks, specialist banks, and peripheral dealers. Nevertheless, whether it is the cocoa market in Ghana (Southall, 1978), the Canadian tourism market (Reimer, 1990), the market for employee talent (Finlay & Coverdill, 2000), the residential real estate market (Halpern, 1996), the New York stock exchange (Abolafia, 1996), or purchases of agricultural technology (McIntosh & Zey-Ferrell, 1986), our model of the brokering process summarized in Figure 3 suggests that the network architect's situation can be described as a set of background forces that influence the broker's motivations and capabilities as a market mediator, a set of deal network attributes over which the broker can exert at least some control, and a set of transaction outcomes that are partially determined by the broker's network design choices. As described in Table 1, within the boundaries of a broker's situation, the broker's accumulated social resources, the broker's dependence on the market as a source of profits, and the exogenous properties of the deal, such as the desirability of the assets being exchanged, are important in influencing how the broker goes about building and managing a given transaction network.…”

“…Finlay and Coverdill suggest that a headhunter's reputation and ability to gain repeat business are keys to his or her success in creating and filling structural holes between clients and potential job candidates. Halpern (1996) describes how friendships among real estate agents influenced their behavior during real estate transactions. She found evidence suggesting that when the agents representing the buyer and seller were friends, the transaction was closed more quickly and the transaction process was viewed as a more positive experience.…”

“…In another example of varying dependence, Halpern (1996) describes how realtors who were more established in their market had more at stake in maintaining their broker position. As a result, established brokers demonstrated concern for preserving and enhancing their social relationships.…”

“…In all such markets, buyers and sellers interact with each other through an intermediary market maker whose formal role is to bridge the buyerseller informational interface (e.g., Abolafia, 1996;Baker, 1984;Finlay & Coverdill, 2000;Halpern, 1996;Khurana, 2002). Transaction intermediaries such as brokers, underwriters, and agents arise in markets where the search costs associated with identifying potential transaction partners are high, where opportunism can easily run rampant, and where buyers often require steep price discounts to compensate for the risks they must absorb by participating in a deal (Abolafia, 1996).…”

“…Aside from the literature on structural holes, existing studies of brokering consist mainly of descriptive accounts of broker activities in very specific market contexts, such as securities trading (e.g., Abolafia, 1996), employee recruiting (Finlay & Coverdill, 2000;Khurana, 2002), real estate (Halpern, 1996), leisure travel (Reimer, 1990), and cocoa exporting (Southall, 1978). These descriptive accounts have illustrated how the brokering role is complicated by and embedded within the idiosyncrasies of each market situation.…”