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Agent Change and Seller Bargaining Power: A Case of Principal Agent Problem in the Housing Market

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  • Nasser Daneshvary

    ()

  • Terrence Clauretie

    ()

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    Abstract

    When a seller hires an agent to sell his/her property, a successful outcome depends on the list price, marketing time, unobserved relative bargaining power of the buyers and sellers, and the effort levels of the seller and the seller’s agent. A divergence with respect to the list/transaction prices and the expected effort levels between seller and agent will create a principal-agent interest conflict. This conflict in some cases results in an agent change before the house is sold. The change will reduce the relative bargaining power of the seller, affecting the observed marketing time and transaction price. This study estimates the effects of an agent change on marketing time and transaction price after controlling for degree of overpricing, list-price revisions, marketing time, and endogenous selection bias. Our results show that: (1) on average, an agent change increases the marketing time by about 3 months and adversely affects the transaction price by about 2.7 %. Furthermore, we found that an agent change before the expiration of the listing contract, compared to that of after the expiration, has a smaller effect on the marketing time (2.3 vs. 3.8 months) and has a smaller transaction price discount (2.1 % vs. 4.2 %). Copyright Springer Science+Business Media, LLC 2013

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    Bibliographic Info

    Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

    Volume (Year): 47 (2013)
    Issue (Month): 3 (October)
    Pages: 416-433

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    Handle: RePEc:kap:jrefec:v:47:y:2013:i:3:p:416-433

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    Web page: http://www.springerlink.com/link.asp?id=102945

    Related research

    Keywords: Agency problem; Agent change; Bargaining power; D8; L8; R31;

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    References

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    1. Michel Glower & Donald R. Haurin & Patric H. Hendershott, 1998. "Selling Time and Selling Price: The Influence of Seller Motivation," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(4), pages 719-740.
    2. Abdullah Yavaş, 1992. "A Simple Search and Bargaining Model of Real Estate Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(4), pages 533-548.
    3. Shiawee X. Yang & Abdullah Yavas, 1995. "Bigger is not Better: Brokerage and Time on the Market," Journal of Real Estate Research, American Real Estate Society, vol. 10(1), pages 23-34.
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    6. Terrence M. Clauretie & Nasser Daneshvary, 2009. "Estimating the House Foreclosure Discount Corrected for Spatial Price Interdependence and Endogeneity of Marketing Time," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(1), pages 43-67.
    7. Springer, Thomas M, 1996. "Single-Family Housing Transactions: Seller Motivations, Price, and Marketing Time," The Journal of Real Estate Finance and Economics, Springer, vol. 13(3), pages 237-54, November.
    8. John P. Harding & John R. Knight & C.F. Sirmans, 2003. "Estimating Bargaining Effects in Hedonic Models: Evidence from the Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 31(4), pages 601-622, December.
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    18. John P. Harding & Stuart S. Rosenthal & C. F. Sirmans, 2003. "Estimating Bargaining Power in the Market for Existing Homes," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 178-188, February.
    19. Michael A. Arnold, 1999. "Search, Bargaining and Optimal Asking Prices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(3), pages 453-481.
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