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Commission Splits in Real Estate Transactions

Author

Listed:
  • Xun Bian

    (Longwood University)

  • Bennie D. Waller

    (Longwood University)

  • Abdullah Yavas

    (University of Wisconsin - Madison)

Abstract

We examine commission splits between listing and selling agents in real estate transactions. We construct a theoretical model to show that agency problems arise when a listing agent attempts to maximize his or her payoff while setting the commission split. Mitigation to these agency problems can be achieved through the imposition of a limited duration on listing contracts. Our model produces several testable hypotheses, which are supported by empirical evidence. We find property listings with higher list prices and quick sales are associated with lower commission splits. Commission split is more likely to be higher when the listed property has a high degree of atypicality and/or is overpriced. Additionally, agent-owned properties pay higher commission splits.

Suggested Citation

  • Xun Bian & Bennie D. Waller & Abdullah Yavas, 2017. "Commission Splits in Real Estate Transactions," The Journal of Real Estate Finance and Economics, Springer, vol. 54(2), pages 165-187, February.
    • Handle: RePEc:kap:jrefec:v:54:y:2017:i:2:d:10.1007_s11146-015-9541-0
    DOI: 10.1007/s11146-015-9541-0
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Agency theory; Residential brokerage; Commission splits; Dual agency;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • J4 - Labor and Demographic Economics - - Particular Labor Markets
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • L0 - Industrial Organization - - General

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