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Economies of Scope and Density in the Market for Real Estate Brokerage Services

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  • Leonard V. Zumpano
  • Harold W. Elder

Abstract

Using a multiproduct translog cost function, this paper examines the case for economies of scope and density in the market for residential real estate brokerage services. Earlier research that treated output as a homogeneous commodity reported modest economies of scale for this industry. The results of this study suggest that the composition of output is an important source of these scale economies, rather than simply the size of the firm. The economies of scope which we find imply that a balanced mix of listing and sales is the least costly type of operation, a result borne out by the product mix found in our sample. The results also show product‐specific diseconomies of scale, suggesting that specialization in either listing or sales may be sub‐optimal under the current institutional arrangements present in the market. Finally, market density appears to be, at best, only a nominal source of savings for real estate brokerage firms.

Suggested Citation

  • Leonard V. Zumpano & Harold W. Elder, 1994. "Economies of Scope and Density in the Market for Real Estate Brokerage Services," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(3), pages 497-513, September.
    • Handle: RePEc:bla:reesec:v:22:y:1994:i:3:p:497-513
    DOI: 10.1111/1540-6229.00645
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    Citations

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    Cited by:

    1. Randy I. Anderson & Robert Fok & Leonard V. Zumpano & Harold W. Elder, 1998. "Measuring the Efficiency of Residential Real Estate Brokerage Firms," Journal of Real Estate Research, American Real Estate Society, vol. 16(2), pages 139-158.
    2. Lewis, Danielle & Anderson, Randy I. & Zumpano, Leonard V., 1999. "An analysis of affinity programs: the case of real estate brokerage participation," Financial Services Review, Elsevier, vol. 8(3), pages 183-197.
    3. John D. Benjamin & G. Donald Jud & G. Stacy Sirmans, 2000. "Real Estate Brokerage and the Hosting Market: An Annotated Bibliography," Journal of Real Estate Research, American Real Estate Society, vol. 20(1), pages 217-278.
    4. Laurie Bates & Carmelo Giaccotto & Rexford Santerre, 2015. "Is the Real Estate Sector More Responsive to Economy-Wide or Housing Market Conditions? An Exploratory Analysis," The Journal of Real Estate Finance and Economics, Springer, vol. 51(4), pages 541-554, November.
    5. Sean Salter & Ken Johnson & Ernest King, 2010. "Listing Specialization and Pricing Precision," The Journal of Real Estate Finance and Economics, Springer, vol. 40(3), pages 245-259, April.
    6. Maoguo Wu & Rui Xie, 2015. "Impact of Internet Usage on Residential Real Estate Brokerage Firms’ Financial Performance: Evidence from Nanjing, China," International Journal of Management Sciences, Research Academy of Social Sciences, vol. 6(11), pages 515-528.
    7. 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.
    8. T.L. Tyler Yang & Joseph W. Trefzger & Lawrence F. Sherman, 1997. "A Microeconomic Study of Commercial Real Estate Brokerage Firms," Journal of Real Estate Research, American Real Estate Society, vol. 13(2), pages 177-194.
    9. Beck, Jason & Scott, Frank & Yelowitz, Aaron, 2010. "Competition and market structure in local real estate markets," MPRA Paper 27531, University Library of Munich, Germany.
    10. Kerem Yavuz Arslani & Christopher Hannum & Wendy Usrey & Laurie Dufloth, 2018. "A Spatial Model for Market Concentration Measure," ERES eres2018_164, European Real Estate Society (ERES).
    11. Randy I. Anderson & Danielle Lewis & Leonard V. Zumpano, 2000. "X-Inefficiencies in the Residential Real Estate Market: A Stochastic Frontier Approach," Journal of Real Estate Research, American Real Estate Society, vol. 20(1), pages 93-103.
    12. John D. Benjamin & Peter Chinloy & Donald Jud & Daniel T. Winkler, 2005. "Technology and Real Estate Brokerage Firm Financial Performance," Journal of Real Estate Research, American Real Estate Society, vol. 27(4), pages 409-426.
    13. Leonard V. Zumpano & Harold W. Elder & Randy I. Anderson, 2000. "The Residential Real Estate Brokerage Industry: An Overview of Past Performance and Future Prospects," Journal of Real Estate Research, American Real Estate Society, vol. 19(2), pages 189-208.
    14. Martina Bers & Thomas M. Springer, 1997. "Economies of Scale for Real Estate Investment Trusts," Journal of Real Estate Research, American Real Estate Society, vol. 14(3), pages 275-290.
    15. Lewis, Danielle & Webb, James R., 2007. "Potential cost synergies from banks acquiring real estate brokerage services," Journal of Banking & Finance, Elsevier, vol. 31(8), pages 2347-2363, August.
    16. Jonathan Wiley & Justin Benefield & Marcus Allen, 2014. "Cyclical Determinants of Brokerage Commission Rates," The Journal of Real Estate Finance and Economics, Springer, vol. 48(1), pages 196-219, January.
    17. John D. Benjamin & Peter Chinloy & Donald Jud & Daniel T. Winkler, 2006. "Franchising in Residential Brokerage," Journal of Real Estate Research, American Real Estate Society, vol. 28(1), pages 61-70.
    18. Groot, Tom & Garcia-Valderrama, Teresa, 2006. "Research quality and efficiency: An analysis of assessments and management issues in Dutch economics and business research programs," Research Policy, Elsevier, vol. 35(9), pages 1362-1376, November.
    19. Leonard V. Zumpano & Ken Johnson & Randy I. Anderson, 2007. "Listing Specialization and Residential Real Estate Licensee," Journal of Real Estate Research, American Real Estate Society, vol. 29(1), pages 75-90.

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