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Market Distortions When Agents Are Better Informed: The Value of Information in Real Estate Transactions

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Author Info
Steven D. Levitt (University of Chicago, NBER, and American Bar Foundation)
Chad Syverson (University of Chicago and NBER)

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Abstract

Agents are often better informed than the clients who hire them and may exploit this informational advantage. Real estate agents have an incentive to convince clients to sell their houses too cheaply and too quickly. We test these predictions by comparing home sales in which real estate agents are hired to when an agent sells his own home. Consistent with the theory, we find homes owned by real estate agents sell for 3.7% more than other houses and stay on the market 9.5 days longer, controlling for observables. Greater information asymmetry leads to larger distortions. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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File URL: http://www.mitpressjournals.org/doi/pdfplus/10.1162/rest.90.4.599
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Publisher Info
Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 90 (2008)
Issue (Month): 4 (08)
Pages: 599-611
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Handle: RePEc:tpr:restat:v:90:y:2008:i:4:p:599-611

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  1. Ronald Rutherford & Thomas Springer & Abdullah Yavas, 2007. "Evidence of Information Asymmetries in the Market for Residential Condominiums," The Journal of Real Estate Finance and Economics, Springer, vol. 35(1), pages 23-38, July. [Downloadable!] (restricted)
  2. Simon Loertscher & Andras Niedermayer, 2008. "Fee Setting Intermediaries: On Real Estate Agents, Stock Brokers, and Auction Houses," Discussion Papers 1472, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  4. Simon Loertscher & Andras Niedermayer, 2007. "When is Seller Price Setting with Linear Fees Optimal for Intermediaries?," Diskussionsschriften dp0706, Universitaet Bern, Departement Volkswirtschaft. [Downloadable!]
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  5. B. Douglas Bernheim & Jonathan Meer, 2008. "How Much Value Do Real Estate Brokers Add? A Case Study," NBER Working Papers 13796, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Alan Beggs & Kathryn Graddy, 2008. "Failure to meet the reserve price: the impact on returns to art," Journal of Cultural Economics, Springer, vol. 32(4), pages 301-320, December. [Downloadable!] (restricted)
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  7. Abdullah Yavas, 2007. "Introduction: Real Estate Brokerage," The Journal of Real Estate Finance and Economics, Springer, vol. 35(1), pages 1-5, July. [Downloadable!] (restricted)
  8. Paul E. Carrillo, 2005. "Assessing the Value of On-line Information Using a Two-sided Equilibrium Search Model in the Real Estate Market," Computing in Economics and Finance 2005 307, Society for Computational Economics. [Downloadable!]
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  10. Lan Shi & Christina Tapia, 2009. "The Disciplining Effect of Concern for Referrals for Better Informed Agents: Evidence from Real Estate Transactions," Working Papers UWEC-2009-06, University of Washington, Department of Economics. [Downloadable!]
  11. David Barker, 2008. "Ethics and Lobbying: The Case of Real Estate Brokerage," Journal of Business Ethics, Springer, vol. 80(1), pages 23-35, June. [Downloadable!] (restricted)
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