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Is the Compensation Model for Real Estate Brokers Obsolete?

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Author Info
Thomas Miceli ()
Katherine Pancak ()
C. Sirmans ()

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Abstract

This study examines the traditional compensation model for real estate brokers under which both the listing and buyer brokers are paid by the seller based on a percentage of the property sales price. We argue that this model has not evolved to reflect contemporary legal agency relationships and technology-driven information availability. It therefore creates substantial transactional inefficiencies for buyers and sellers at both the matching and bargaining stages of a transaction. While there is evidence that market forces are pushing for a change in the status quo, there is also evidence that the brokerage industry is resisting this change by pursuing anti-competitive policies and laws. We explore the economics of the current and alternative compensation structures and suggest policy implications regarding anti-competitive behavior in the brokerage industry. Copyright Springer Science+Business Media, LLC 2007

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File URL: http://hdl.handle.net/10.1007/s11146-007-9026-x
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Publisher Info
Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

Volume (Year): 35 (2007)
Issue (Month): 1 (July)
Pages: 7-22
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:kap:jrefec:v:35:y:2007:i:1:p:7-22

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Web page: http://www.springerlink.com/link.asp?id=102945

For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).

Related research
Keywords: Agency; Brokerage; Multiple listings; Percentage commission;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Thomas Miceli & Katherine A. Pancak & C. F. Sirmans, 2000. "Restructuring Agency Relationships in the Real Estate Brokerage Industry: An Economic Analysis," Journal of Real Estate Research, American Real Estate Society, vol. 20(1), pages 31-47. [Downloadable!]
  2. Abdullah Yavas, 1996. "Matching of Buyers and Sellers by Brokers: A Comparison of Alternative Commission Structures," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 24(1), pages 97-112. [Downloadable!] (restricted)
  3. Yavas, Abdullah & Colwell, Peter, 1999. "Buyer Brokerage: Incentive and Efficiency Implications," The Journal of Real Estate Finance and Economics, Springer, vol. 18(3), pages 259-77, May. [Downloadable!] (restricted)
  4. Bartlett, Randall, 1981. "Property Rights and the Pricing of Real Estate Brokerage," Journal of Industrial Economics, Blackwell Publishing, vol. 30(1), pages 79-94, September. [Downloadable!] (restricted)
  5. Abdullah Yavaş, 1992. "A Simple Search and Bargaining Model of Real Estate Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(4), pages 533-548. [Downloadable!] (restricted)
  6. John D. Benjamin & G. Donald Jud & G. Stacy Sirmans, 2000. "What Do We Know About Real Estate Brokerage?," Journal of Real Estate Research, American Real Estate Society, vol. 20(1), pages 5-30. [Downloadable!]
  7. Williams, Joseph T, 1998. "Agency and Brokerage of Real Assets in Competitive Equilibrium," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 11(2), pages 239-80.
  8. Lueck, Dean, 1994. "Common property as an egalitarian share contract," Journal of Economic Behavior & Organization, Elsevier, vol. 25(1), pages 93-108, September. [Downloadable!] (restricted)
  9. Sirmans, C. F. & Turnbull, Geoffrey K., 1997. "Brokerage Pricing under Competition," Journal of Urban Economics, Elsevier, vol. 41(1), pages 102-117, January. [Downloadable!] (restricted)
  10. Abdullah Yavas, 2001. "Impossibility of a Competitive Equilibrium in the Real Estate Brokerage Industry," Journal of Real Estate Research, American Real Estate Society, vol. 21(3), pages 187-200. [Downloadable!]
  11. Thomas J. Miceli, 1992. "The Welfare Effects of Non-Price Competition Among Real Estate Brokers," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(4), pages 519-532. [Downloadable!] (restricted)
  12. Anglin, Paul M, 1994. "Contracts for the Sale of Residential Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 8(3), pages 195-211, May.
  13. Yinger, John, 1981. "A Search Model of Real Estate Broker Behavior," American Economic Review, American Economic Association, vol. 71(4), pages 591-605, September. [Downloadable!] (restricted)
  14. Abdullah Yavas & Thomas J. Miceli & C.F. Sirmans, 2001. "An Experimental Analysis of the Impact of Intermediaries on the Outcome of Bargaining Games," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 29(2), pages 251-276. [Downloadable!] (restricted)
  15. John H. Crockett, 1982. "Competition and Efficiency in Transacting: The Case of Residential Real Estate Brokerage," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 10(2), pages 209-227. [Downloadable!] (restricted)
  16. Rutherford, R.C. & Springer, T.M. & Yavas, A., 2005. "Conflicts between principals and agents: evidence from residential brokerage," Journal of Financial Economics, Elsevier, vol. 76(3), pages 627-665, June. [Downloadable!] (restricted)
  17. Thomas S. Zorn & James E. Larsen, 1986. "The Incentive Effects of Flat-Fee and Percentage Commissions for Real Estate Brokers," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 14(1), pages 24-47. [Downloadable!] (restricted)
  18. Levmore, Saul, 1993. "Commissions and Conflicts in Agency Arrangements: Lawyers, Real Estate Brokers, Underwriters, and Other Agents' Rewards," Journal of Law & Economics, University of Chicago Press, vol. 36(1), pages 503-39, April.
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Anupam Nanda & Katherine A. Pancak, 2009. "Broker Duty to Clients: Why States Mandate Minimum Service Requirements," Alumni working papers 2009-01, University of Connecticut, Department of Economics. [Downloadable!]
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