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Real Estate Brokers and Commission: Theory and Calibrations

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  • Oz Shy

Abstract

This paper has two goals: (a) To model an inherent conflict of interest between a seller of a house and the real estate broker hired by the seller. In this environment, the pressure brokers exert on sellers to reduce prices generates faster sales and hence reduces sellers’ expected profit. (b) To calibrate the brokers’ commission rates that would maximize sellers’ expected gain. The calibration results may hint whether the ongoing uniform commission rate reflects collusion among real estate agencies, or should be viewed as competitive. Copyright Springer Science+Business Media, LLC 2012

Suggested Citation

  • Oz Shy, 2012. "Real Estate Brokers and Commission: Theory and Calibrations," The Journal of Real Estate Finance and Economics, Springer, vol. 45(4), pages 982-1004, November.
    • Handle: RePEc:kap:jrefec:v:45:y:2012:i:4:p:982-1004
    DOI: 10.1007/s11146-010-9296-6
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    Cited by:

    1. Oded Palmon & Ben J. Sopranzetti, 2017. "On the relationship between the number of a broker’s real estate listings and transaction outcomes," Review of Quantitative Finance and Accounting, Springer, vol. 49(1), pages 65-89, July.
    2. Matthew Cypher & S. McKay Price & Spenser Robinson & Michael J. Seiler, 2018. "Price Signals and Uncertainty in Commercial Real Estate Transactions," The Journal of Real Estate Finance and Economics, Springer, vol. 57(2), pages 246-263, August.
    3. 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.
    4. Anida Duarte & Annette Craven & J. T. Norris, 2015. "Real Estate Agent Commission Disputes," SAGE Open, , vol. 5(2), pages 21582440155, June.

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    More about this item

    Keywords

    Real estate brokers; Selling a house; Conflict of interest; Middleman; Commission; Price fixing; Loss aversion; L85;
    All these keywords.

    JEL classification:

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

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