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Do Real Estate Brokers Add Value When Listing Services Are Unbundled?

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  • B. Douglas Bernheim
  • Jonathan Meer

Abstract

This paper measures the effects of real estate brokerage services provided to sellers, other than MLS listings, on the terms and timing of home sales. It is not obvious that sellers benefit from those services. On the one hand, brokers offer potentially useful knowledge and expertise. On the other hand, because the relationship between the homeowner and the broker resembles a classical principal-agent problem, the broker may not deploy services in ways that promote the seller's interests. Yet as long as valuable MLS listings are bundled with brokerage services, homeowners may use brokers even if the agency costs exceed the benefits of brokers' knowledge and expertise. Thus, quantification of the net value of brokerage services other than MLS listings bears directly on the recent policy debate over the desirability unbundling of MLS listings. We estimate the effect of a seller's decision to use a broker on list prices, selling prices, and speed of sale for a real estate market with an unusual and critical characteristic: it has a single open-access listing service that is used by essentially all sellers, regardless of whether they employ brokers. Our central finding is that, when listings are not tied to brokerage services, a seller's use of a broker reduces the selling price of the typical home by 5.9 to 7.7 percent, which indicates that agency costs exceed the advantages of brokers' knowledge and expertise by a wide margin.

Suggested Citation

  • B. Douglas Bernheim & Jonathan Meer, 2008. "Do Real Estate Brokers Add Value When Listing Services Are Unbundled?," NBER Working Papers 13796, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:13796
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    References listed on IDEAS

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    1. Steven D. Levitt & Chad Syverson, 2008. "Market Distortions When Agents Are Better Informed: The Value of Information in Real Estate Transactions," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 599-611, November.
    2. Igal Hendel & Aviv Nevo & François Ortalo-Magné, 2009. "The Relative Performance of Real Estate Marketing Platforms: MLS versus FSBOMadison.com," American Economic Review, American Economic Association, vol. 99(5), pages 1878-1898, December.
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    Cited by:

    1. Gautier, Pieter & Siegmann, Arjen & van Vuuren, Aico, 2023. "Real-estate agent commission structure and sales performance," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 163-187.
    2. Oded Palmon & Ben J. Sopranzetti, 2017. "On the relationship between the number of a broker’s real estate listings and transaction outcomes," Review of Quantitative Finance and Accounting, Springer, vol. 49(1), pages 65-89, July.
    3. Panle Jia Barwick & Parag A. Pathak & Maisy Wong, 2015. "Conflicts of Interest and the Realtor Commission Puzzle," NBER Working Papers 21489, National Bureau of Economic Research, Inc.
    4. Darren K. Hayunga & Henry J. Munneke, 2021. "Examining Both Sides of the Transaction: Bargaining in the Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(2), pages 663-691, June.
    5. Edward Kung, 2020. "Innovation and Entrepreneurship in Housing," NBER Chapters, in: The Role of Innovation and Entrepreneurship in Economic Growth, pages 499-533, National Bureau of Economic Research, Inc.
    6. Beck, Jason & Scott, Frank & Yelowitz, Aaron, 2010. "Competition and market structure in local real estate markets," MPRA Paper 27531, University Library of Munich, Germany.
    7. Wojciech Kopczuk & David Munroe, 2015. "Mansion Tax: The Effect of Transfer Taxes on the Residential Real Estate Market," American Economic Journal: Economic Policy, American Economic Association, vol. 7(2), pages 214-257, May.
    8. Chris Cunningham & Kristopher Gerardi & Lily Shen, 2022. "The Good, the Bad, and the Ordinary: Estimating Agent Value-Added Using Real Estate Transactions," FRB Atlanta Working Paper 2022-11, Federal Reserve Bank of Atlanta.
    9. Agarwal, Sumit & He, Jia & Sing, Tien Foo & Song, Changcheng, 2019. "Do real estate agents have information advantages in housing markets?," Journal of Financial Economics, Elsevier, vol. 134(3), pages 715-735.
    10. Lazear, Edward P., 2015. "The impatient salesperson and the delegation of pricing authority," Research in Economics, Elsevier, vol. 69(1), pages 63-74.
    11. Maria Eugénia Sanin, 2009. "Choosing a trading counterpart in the U.S. acid rain market," Working Papers hal-00437636, HAL.
    12. Edward Kung, 2020. "Innovation and Entrepreneurship in Housing," NBER Working Papers 26886, National Bureau of Economic Research, Inc.
    13. Fabrice Larceneux & Thomas Lefebvre & Arnaud Simon, 2015. "What added value do Estate Agents offer compared to FSBO transaction? Explanation from a perceived advantages model," Post-Print hal-01635048, HAL.
    14. Qiyuan Wang, 2024. "For-Sale-by-Owner Platforms and Intermediation Pricing: Evidence from a Natural Experiment," Marketing Science, INFORMS, vol. 43(2), pages 346-359, March.
    15. Han, Lu & Strange, William C., 2015. "The Microstructure of Housing Markets," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 813-886, Elsevier.
    16. Panle Jia Barwick & Parag A. Pathak & Maisy Wong, 2017. "Conflicts of Interest and Steering in Residential Brokerage," American Economic Journal: Applied Economics, American Economic Association, vol. 9(3), pages 191-222, July.
    17. Seung‐Hyun Hong, 2022. "Real estate agents' influence on housing search," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(3), pages 563-582, April.
    18. Ben Ameur, Hachmi & Le Fur, Eric, 2020. "Volatility transmission to the fine wine market," Economic Modelling, Elsevier, vol. 85(C), pages 307-316.
    19. Jochen Michaelis & Benjamin Schwanebeck, 2020. "Das Bestellerprinzip auf Wohnungs- und Immobilienmaerkten - ist gut gemeint auch gut?," MAGKS Papers on Economics 202015, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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