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

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Author Info

  • Richard Arnott

    ()
    (Boston College)

  • Paul Anglin

    (University of Windsor)

Abstract

Many people believe that prevailing commission rates for residential real estate brokers are "too high" but do not offer 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 representative of a typical housing market.

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File URL: http://fmwww.bc.edu/EC-P/wp302.pdf
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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 302..

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Length: 38 pages
Date of creation: Apr 1995
Date of revision:
Handle: RePEc:boc:bocoec:302

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Web page: http://fmwww.bc.edu/EC/
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Related research

Keywords: real estate brokers; commission rate; matching technology; mismatch costs; idiosyncratic tastes;

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References

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  1. Chen, Yongmin & Rosenthal, Robert W, 1996. "Asking Prices as Commitment Devices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 129-55, February.
  2. 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.
  3. Anglin, Paul M., 1993. "A note concerning a competitive equilibrium in the market for agents," Economics Letters, Elsevier, vol. 41(3), pages 247-252.
  4. Andrew Caplin & Barry Nalebuff, 1990. "Aggregation and Social Choice: A Mean Voter Theorem," Cowles Foundation Discussion Papers 938, Cowles Foundation for Research in Economics, Yale University.
  5. Wheaton, William C, 1990. "Vacancy, Search, and Prices in a Housing Market Matching Model," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1270-92, December.
  6. Yavas Abdullah, 1995. "Can Brokerage Have an Equilibrium Selection Role?," Journal of Urban Economics, Elsevier, vol. 37(1), pages 17-37, January.
  7. Peters Michael, 1994. "Equilibrium Mechanisms in a Decentralized Market," Journal of Economic Theory, Elsevier, vol. 64(2), pages 390-423, December.
  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.
  9. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
  10. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  11. 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.
  12. 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.
  13. Anming Zhang, 1993. "An Analysis of Common Sales Agents," Canadian Journal of Economics, Canadian Economics Association, vol. 26(1), pages 134-49, February.
  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.
  15. Richard Arnott, 1988. "Housing Vacancies, Thin Markets, and Idiosyncratic Tastes," Working Papers 722, Queen's University, Department of Economics.
  16. Richard Arnott, 1997. "Rent Control," Boston College Working Papers in Economics 391., Boston College Department of Economics.
  17. Blanchard, J.O., 1989. "The Aggregate Matching Function," Working papers 538, Massachusetts Institute of Technology (MIT), Department of Economics.
  18. 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.
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Citations

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Cited by:
  1. Bruce, Donald & Santore, Rudy, 2006. "On optimal real estate commissions," Journal of Housing Economics, Elsevier, vol. 15(2), pages 156-166, June.
  2. Oz Shy, 2009. "Real estate brokers and commission: theory and calibrations," Working Papers 09-8, Federal Reserve Bank of Boston.
  3. 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.
  4. Anglin, Paul M., 2004. "How long does it take to buy one house and sell another?," Journal of Housing Economics, Elsevier, vol. 13(2), pages 87-100, June.
  5. İnaltekin, Hazer & Jarrow, Robert A. & Sağlam, Mehmet & Yıldırım, Yıldıray, 2011. "Housing prices and the optimal time-on-the-market decision," Finance Research Letters, Elsevier, vol. 8(4), pages 171-179.

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