Adversarial Brokerage in Residential Real Estate Transactions: The Impact of Separate Buyer Representation
AbstractAlthough substantial research effort has been directed to the examination of optimal search and pricing behavior under traditional brokerage arrangements, market outcomes under conditions of undisclosed subagency and buyer representation have not been fully explored. This study applies the legal and economic theory of agency to real estate markets with cooperating brokers. The existence of cooperating brokers acting as subagents of the seller with the buyer’s full knowledge does not change the buyer’s and seller’s net payoffs relative to the single-agent case. However, when the buyer mistakenly believes that the cooperating broker/subagent is acting as his agent in negotiations, there may be informational gains that result in a higher selling price and a higher payoff to the seller at the expense of the buyer. The analysis indicates that buyer brokers may be a potential solution to this agency problem. When both parties to a real estate transaction have separate representation, their net payoffs are shown to be higher and the sales price lower than under traditional brokerage arrangements. The result is dependent on several factors, including: market conditions, relative bargaining power of the parties, method of broker compensation, and disclosure of the status of the buyer broker.
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Bibliographic InfoArticle provided by American Real Estate Society in its journal Journal of Real Estate Research.
Volume (Year): 14 (1997)
Issue (Month): 1 ()
Contact details of provider:
Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
Web page: http://www.aresnet.org/
Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
Find related papers by JEL classification:
- L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services
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