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Are Brokers' Commission Rates on Home Sales Too High? A Conceptual Analysis

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Author Info
Paul Anglin
Richard Arnott

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Abstract

Many people in North America believe that prevailing commission rates for residential real estate brokers are too high, even though such beliefs are not based on a formal model. This paper presents a general equilibrium model of the housing market in which real estate brokers serve as matching intermediaries. We use this model to construct an illustrative example which is calibrated using data consistent with a typical housing market. The example suggests that the commission rate which maximizes aggregate efficiency is considerably below the prevailing rate. Moreover, this finding appears to be robust to changes in the matching process. Copyright American Real Estate and Urban Economics Association.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/1540-6229.00790
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Publisher Info
Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

Volume (Year): 27 (1999)
Issue (Month): 4 ()
Pages: 719-749
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Handle: RePEc:bla:reesec:v:27:y:1999:i:4:p:719-749

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=1080-8620

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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. Richard Arnott, 1997. "Rent Control," Boston College Working Papers in Economics 391., Boston College Department of Economics. [Downloadable!]
  2. Peters Michael, 1994. "Equilibrium Mechanisms in a Decentralized Market," Journal of Economic Theory, Elsevier, vol. 64(2), pages 390-423, December. [Downloadable!] (restricted)
  3. Thomas J. Miceli, 1989. "The Optimal Duration of Real Estate Listing Contracts," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(3), pages 267-277. [Downloadable!] (restricted)
  4. 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)
  5. Arnott, Richard, 1989. "Housing Vacancies, Thin Markets, and Idiosyncratic Tastes," The Journal of Real Estate Finance and Economics, Springer, vol. 2(1), pages 5-30, February.
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  6. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 279-98, April. [Downloadable!] (restricted)
  7. Anglin, Paul M & Arnott, Richard, 1991. "Residential Real Estate Brokerage as a Principal-Agent Problem," The Journal of Real Estate Finance and Economics, Springer, vol. 4(2), pages 99-125, June.
  8. 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)
  9. Anglin, Paul M., 1993. "A note concerning a competitive equilibrium in the market for agents," Economics Letters, Elsevier, vol. 41(3), pages 247-252. [Downloadable!] (restricted)
  10. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Social Choice: A Mean Voter Theorem," Econometrica, Econometric Society, vol. 59(1), pages 1-23, January. [Downloadable!] (restricted)
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  11. David Geltner & Brian D. Kluger & Norman G. Miller, 1991. "Optimal Price and Selling Effort from the Perspectives of the Broker and Seller," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(1), pages 1-24. [Downloadable!] (restricted)
  12. Anming Zhang, 1993. "An Analysis of Common Sales Agents," Canadian Journal of Economics, Canadian Economics Association, vol. 26(1), pages 134-49, February. [Downloadable!] (restricted)
  13. Yavas Abdullah, 1995. "Can Brokerage Have an Equilibrium Selection Role?," Journal of Urban Economics, Elsevier, vol. 37(1), pages 17-37, January. [Downloadable!] (restricted)
  14. Diamond, Peter A, 1981. "Mobility Costs, Frictional Unemployment, and Efficiency," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 798-812, August. [Downloadable!] (restricted)
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  15. Chen, Y. & Rosenthal, R.W., 1993. "Asking Prices as Commitment Devices," Papers 42, Boston University - Industry Studies Programme.
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  16. Olivier Jean Blanchard & Peter A. Diamond, 1991. "The Aggregate Matching Function," NBER Working Papers 3175, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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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. 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!]
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