This study examines the traditional compensation model for real estate brokers under which both the listing and buyer brokers are paid by the seller based on a percentage of the property sales price. We argue that this model has not evolved to reflect contemporary legal agency relationships and technology-driven information availability. It therefore creates substantial transactional inefficiencies for buyers and sellers at both the matching and bargaining stages of a transaction. While there is evidence that market forces are pushing for a change in the status quo, there is also evidence that the brokerage industry is resisting this change by pursuing anti-competitive policies and laws. We explore the economics of the current and alternative compensation structures and suggest policy implications regarding anti-competitive behavior in the brokerage industry.
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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number
2006-23.
Length: 31 pages Date of creation: Nov 2006 Date of revision: Handle: RePEc:uct:uconnp:2006-23
Note: We acknowledge the helpful comments of Abdullah Yavas (special issue editor), an anonymous reviewer, and participants at the Annual Meeting of the Real Estate Society, April 2006. Contact details of provider: Postal: University of Connecticut 341 Mansfield Road, Unit 1063 Storrs, CT 06269-1063 Phone: (860) 486-4889 Fax: (860) 486-4463 Web page: http://www.econ.uconn.edu/ More information through EDIRC
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Find related papers by JEL classification: D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services R33 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets
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