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Using a real estate broker as a way of signalling the quality of a house

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  • Catherine Mougel

Abstract

Using game theory and more specifically a signalling game, we draw a general model which help us to study the bargaining step of a real estate transaction. In our game, the two players are aseller and a buyer, which bargain over the transaction price of a house. Information is not symmetric, Thus, the seller has private information about the good that he wants to sell. The buyer is not a real estate professional and doesnít know the true quality of the real estate good. In our game, the house can be ëfoodí or ëbadí. Only the seller can contract with a broker. This real estate broker is not really a player but he can be used by the seller as a signal of quality. The seller knowing the quality of his house, can directly propose a transaction price to the buyer or can delegate it to the broker. Thus the buyer can choose to accept or to refuse the price without knowing the quality of the house. This buyer can only observe if the seller or the broker proposes the price.It’S Better For The Seller To Use A Broker. However, Mixed Strategy), Separating, The Best Solution For The Seller Is To Sell Himself. The Next Step Of This Paper Is To Compare The Results Of The Game With Data Of Our Regional Real Estate Transactions Market., We Consider 3 Case Studies. They Deal With The Quality Of Houses In A Same Residential Area. Thus, We Find The General Conditions To Follow. To Study Different Situations, We Study The Different Equilibriums Of This Game.

Suggested Citation

  • Catherine Mougel, 2001. "Using a real estate broker as a way of signalling the quality of a house," ERES eres2001_244, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2001_244
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    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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