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Commission Splits in Real Estate Transactions

Author

Listed:
  • Xun Bian

    () (Longwood University)

  • Bennie D. Waller

    () (Longwood University)

  • Abdullah Yavas

    () (University of Wisconsin - Madison)

Abstract

Abstract We examine commission splits between listing and selling agents in real estate transactions. We construct a theoretical model to show that agency problems arise when a listing agent attempts to maximize his or her payoff while setting the commission split. Mitigation to these agency problems can be achieved through the imposition of a limited duration on listing contracts. Our model produces several testable hypotheses, which are supported by empirical evidence. We find property listings with higher list prices and quick sales are associated with lower commission splits. Commission split is more likely to be higher when the listed property has a high degree of atypicality and/or is overpriced. Additionally, agent-owned properties pay higher commission splits.

Suggested Citation

  • Xun Bian & Bennie D. Waller & Abdullah Yavas, 2017. "Commission Splits in Real Estate Transactions," The Journal of Real Estate Finance and Economics, Springer, vol. 54(2), pages 165-187, February.
  • Handle: RePEc:kap:jrefec:v:54:y:2017:i:2:d:10.1007_s11146-015-9541-0 DOI: 10.1007/s11146-015-9541-0
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    References listed on IDEAS

    as
    1. Steven D. Levitt & Chad Syverson, 2008. "Market Distortions When Agents Are Better Informed: The Value of Information in Real Estate Transactions," The Review of Economics and Statistics, MIT Press, pages 599-611.
    2. Sykes, Alan O, 1993. "Some Thoughts on the Real Estate Puzzle: Comment [Commissions and Conflicts in Agency Arrangements: Lawyers, Real Estate Brokers, Underwriters, and Other Agents' Rewards]," Journal of Law and Economics, University of Chicago Press, vol. 36(1), pages 541-551, April.
    3. Bian, Xun & Waller, Bennie D. & Turnbull, Geoffrey K. & Wentland, Scott A., 2015. "How many listings are too many? Agent inventory externalities and the residential housing market," Journal of Housing Economics, Elsevier, vol. 28(C), pages 130-143.
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    More about this item

    Keywords

    Agency theory; Residential brokerage; Commission splits; Dual agency;

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • J4 - Labor and Demographic Economics - - Particular Labor Markets
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • L0 - Industrial Organization - - General

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