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Measuring the Efficiency of Residential Real Estate Brokerage Firms

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Abstract

This article measures overall, allocative, technical, pure technical and scale efficiency levels for a sample of residential real estate brokerage firms using data envelopment analysis, a linear-programming technique. The results suggest that real estate brokerage firms operate inefficiently. Inefficiencies are primarily a function of sub-optimal input allocations and the failure to operate at constant returns to scale rather than from poor input utilization. Regression analysis is employed to determine which firm and/or market characteristics affect efficiency levels. The results show that increasing firm size increases efficiency while choosing to franchise, adding an additional multiple listing service and increasing operating leverage decreases firm performance.

Suggested Citation

  • Randy I. Anderson & Robert Fok & Leonard V. Zumpano & Harold W. Elder, 1998. "Measuring the Efficiency of Residential Real Estate Brokerage Firms," Journal of Real Estate Research, American Real Estate Society, vol. 16(2), pages 139-158.
  • Handle: RePEc:jre:issued:v:16:n:2:1998:p:139-158
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    References listed on IDEAS

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    1. Carroll, Wayne, 1989. "Fixed-Percentage Commissions and Moral Hazard in Residential Real Estate Brokerage," The Journal of Real Estate Finance and Economics, Springer, vol. 2(4), pages 349-365, December.
    2. John H. Crockett, 1982. "Competition and Efficiency in Transacting: The Case of Residential Real Estate Brokerage," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 10(2), pages 209-227.
    3. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    4. Schroeter, John R., 1987. "Competition and Value-Of-Service Pricing in the Residential Real Estate Brokerage Market," Staff General Research Papers Archive 11116, Iowa State University, Department of Economics.
    5. Linda L. Johnson & Christine Loucks, 1986. "The Effect of State Licensing Regulations on the Real Estate Brokerage Industry," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 14(4), pages 567-582.
    6. Maurizi, Alex, 1974. "Occupational Licensing and the Public Interest," Journal of Political Economy, University of Chicago Press, vol. 82(2), pages 399-413, Part I, M.
    7. Yinger, John, 1981. "A Search Model of Real Estate Broker Behavior," American Economic Review, American Economic Association, vol. 71(4), pages 591-605, September.
    8. Leonard V. Zumpano & Harold W. Elder, 1994. "Economies of Scope and Density in the Market for Real Estate Brokerage Services," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(3), pages 497-513.
    9. Zumpano, Leonard V & Elder, Harold W & Crellin, Glenn E, 1993. "The Market for Residential Real Estate Brokerage Services: Costs of Production and Economies of Scale," The Journal of Real Estate Finance and Economics, Springer, vol. 6(3), pages 237-250, May.
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    Citations

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    Cited by:

    1. Lewis, Danielle & Anderson, Randy I. & Zumpano, Leonard V., 1999. "An analysis of affinity programs: the case of real estate brokerage participation," Financial Services Review, Elsevier, vol. 8(3), pages 183-197.
    2. John D. Benjamin & G. Donald Jud & G. Stacy Sirmans, 2000. "Real Estate Brokerage and the Hosting Market: An Annotated Bibliography," Journal of Real Estate Research, American Real Estate Society, vol. 20(1), pages 217-278.
    3. repec:rss:jnljms:v6i11p2 is not listed on IDEAS
    4. Jui-Kou Shang & Wei-Ting Hung & Fei-Ching Wang, 2008. "Service outsourcing and hotel performance: three-stage DEA analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 15(13), pages 1053-1057.
    5. Randy I. Anderson & Danielle Lewis & Leonard V. Zumpano, 2000. "X-Inefficiencies in the Residential Real Estate Market: A Stochastic Frontier Approach," Journal of Real Estate Research, American Real Estate Society, vol. 20(1), pages 93-103.
    6. John D. Benjamin & Peter Chinloy & Donald Jud & Daniel T. Winkler, 2005. "Technology and Real Estate Brokerage Firm Financial Performance," Journal of Real Estate Research, American Real Estate Society, vol. 27(4), pages 409-426.
    7. Leonard V. Zumpano & Harold W. Elder & Randy I. Anderson, 2000. "The Residential Real Estate Brokerage Industry: An Overview of Past Performance and Future Prospects," Journal of Real Estate Research, American Real Estate Society, vol. 19(2), pages 189-208.
    8. Lewis, Danielle & Webb, James R., 2007. "Potential cost synergies from banks acquiring real estate brokerage services," Journal of Banking & Finance, Elsevier, vol. 31(8), pages 2347-2363, August.
    9. Lingxiao Li & Abdullah Yavas, 2015. "The Impact of a Multiple Listing Service," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(2), pages 471-506, June.
    10. John D. Benjamin & Peter Chinloy & Donald Jud & Daniel T. Winkler, 2006. "Franchising in Residential Brokerage," Journal of Real Estate Research, American Real Estate Society, vol. 28(1), pages 61-70.
    11. Groot, Tom & Garcia-Valderrama, Teresa, 2006. "Research quality and efficiency: An analysis of assessments and management issues in Dutch economics and business research programs," Research Policy, Elsevier, vol. 35(9), pages 1362-1376, November.

    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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