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The Optimal Selling Strategy of Residential Real Estate

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  • Jia Xie

    (California State University–Fullerton)

Abstract

This paper studies three selling strategies of residential real estate: delegation to a broker, cheap talk with a broker and For Sale By Owner (FSBO). We find that if the state of the market is very uncertain and information of the market is scarce, the seller should hire a broker and delegate the decision right to the broker, even if the broker has no informational advantage. In this case, delegation may induce the broker to over-invest in information acquisition, i.e., more than what the seller would do in FSBO. If the market is certain and information is easily available, FSBO is optimal. Cheap talk, on the other hand, is never optimal, as much information is lost in the cheap-talk communication, weakening the broker’s incentive to acquire information.

Suggested Citation

  • Jia Xie, 2019. "The Optimal Selling Strategy of Residential Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 59(3), pages 461-489, October.
    • Handle: RePEc:kap:jrefec:v:59:y:2019:i:3:d:10.1007_s11146-018-9689-5
    DOI: 10.1007/s11146-018-9689-5
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    References listed on IDEAS

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    Cited by:

    1. Thomas J. Emmerling & Abdullah Yavas & Yildiray Yildirim, 2021. "To accept or not to accept: Optimal strategy for sellers in real estate," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(S1), pages 268-296, March.
    2. Cedric Behler & Philip Gärtner & Hans-Joachim Linke, 2023. "Marktdominanz von Maklern auf Onlineimmobilienportalen in Deutschland und Kalifornien [Market dominance of real estate brokers on online real estate platforms in Germany and California]," Zeitschrift für Immobilienökonomie (German Journal of Real Estate Research), Springer;Gesellschaft für Immobilienwirtschaftliche Forschung e. V., vol. 9(1), pages 31-61, April.
    3. Ping Cheng & Zhenguo Lin & Yingchun Liu, 2021. "Competing Selling Strategies in the Housing Market," The Journal of Real Estate Finance and Economics, Springer, vol. 63(3), pages 394-413, October.
    4. Luis Arturo Lopez, 2021. "Asymmetric information and personal affiliations in brokered housing transactions," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(2), pages 459-492, June.

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