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Are Brokers' Commission Rates on Home Sales Too High? A Conceptual Analysis

Author

Listed:
  • Richard Arnott

    () (Boston College)

  • Paul Anglin

    (University of Windsor)

Abstract

Many people believe that prevailing commission rates for residential real estate brokers are "too high" but do not offer a formal model. This paper presents a general equilibrium model of the housing market in which real estate brokers serve as matching intermediaries. We use this model to construct an illustrative example which is "calibrated" using data representative of a typical housing market.

Suggested Citation

  • Richard Arnott & Paul Anglin, 1995. "Are Brokers' Commission Rates on Home Sales Too High? A Conceptual Analysis," Boston College Working Papers in Economics 302., Boston College Department of Economics.
  • Handle: RePEc:boc:bocoec:302
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    File URL: http://fmwww.bc.edu/EC-P/wp302.pdf
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    References listed on IDEAS

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    1. Richard Arnott, 1997. "Rent Control," Boston College Working Papers in Economics 391., Boston College Department of Economics.
    2. Peters Michael, 1994. "Equilibrium Mechanisms in a Decentralized Market," Journal of Economic Theory, Elsevier, vol. 64(2), pages 390-423, December.
    3. Arnott, Richard, 1989. "Housing Vacancies, Thin Markets, and Idiosyncratic Tastes," The Journal of Real Estate Finance and Economics, Springer, vol. 2(1), pages 5-30, February.
    4. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Social Choice: A Mean Voter Theorem," Econometrica, Econometric Society, pages 1-23.
    5. Yavas, Abdullah & Colwell, Peter, 1999. "Buyer Brokerage: Incentive and Efficiency Implications," The Journal of Real Estate Finance and Economics, Springer, vol. 18(3), pages 259-277, May.
    6. Chen, Yongmin & Rosenthal, Robert W, 1996. "Asking Prices as Commitment Devices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 129-155, February.
    7. Anglin, Paul M & Arnott, Richard, 1991. "Residential Real Estate Brokerage as a Principal-Agent Problem," The Journal of Real Estate Finance and Economics, Springer, vol. 4(2), pages 99-125, June.
    8. Wheaton, William C, 1990. "Vacancy, Search, and Prices in a Housing Market Matching Model," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1270-1292, December.
    9. Anglin, Paul M., 1993. "A note concerning a competitive equilibrium in the market for agents," Economics Letters, Elsevier, vol. 41(3), pages 247-252.
    10. P. Diamond, 1980. "Mobility Costs, Frictional Unemployment and Efficiency," Working papers 257, Massachusetts Institute of Technology (MIT), Department of Economics.
    11. Anming Zhang, 1993. "An Analysis of Common Sales Agents," Canadian Journal of Economics, Canadian Economics Association, vol. 26(1), pages 134-149, February.
    12. Diamond, Peter A, 1981. "Mobility Costs, Frictional Unemployment, and Efficiency," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 798-812, August.
    13. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
    14. Alberto Alesina & Howard Rosenthal, 1989. "Moderating Elections," NBER Working Papers 3072, National Bureau of Economic Research, Inc.
    15. Thomas J. Miceli, 1989. "The Optimal Duration of Real Estate Listing Contracts," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(3), pages 267-277.
    16. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 279-298.
    17. Thomas J. Miceli, 1992. "The Welfare Effects of Non-Price Competition Among Real Estate Brokers," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(4), pages 519-532.
    18. David Geltner & Brian D. Kluger & Norman G. Miller, 1991. "Optimal Price and Selling Effort from the Perspectives of the Broker and Seller," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(1), pages 1-24.
    19. Yavas Abdullah, 1995. "Can Brokerage Have an Equilibrium Selection Role?," Journal of Urban Economics, Elsevier, vol. 37(1), pages 17-37, January.
    20. Blanchard, J.O., 1989. "The Aggregate Matching Function," Working papers 538, Massachusetts Institute of Technology (MIT), Department of Economics.
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    Citations

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    Cited by:

    1. Allen Head & Huw Lloyd-Ellis & Hongfei Sun, 2016. "Search, Liquidity, and the Dynamics of House Prices and Construction: Corrigendum," American Economic Review, American Economic Association, pages 1214-1219.
    2. Anglin, Paul M., 2004. "How long does it take to buy one house and sell another?," Journal of Housing Economics, Elsevier, vol. 13(2), pages 87-100, June.
    3. Abdullah Yavas, 2001. "Impossibility of a Competitive Equilibrium in the Real Estate Brokerage Industry," Journal of Real Estate Research, American Real Estate Society, vol. 21(3), pages 187-200.
    4. Bruce, Donald & Santore, Rudy, 2006. "On optimal real estate commissions," Journal of Housing Economics, Elsevier, vol. 15(2), pages 156-166, June.
    5. Oz Shy, 2009. "Real estate brokers and commission: theory and calibrations," Working Papers 09-8, Federal Reserve Bank of Boston.
    6. İnaltekin, Hazer & Jarrow, Robert A. & Sağlam, Mehmet & Yıldırım, Yıldıray, 2011. "Housing prices and the optimal time-on-the-market decision," Finance Research Letters, Elsevier, vol. 8(4), pages 171-179.
    7. Kashiwagi, Masanori, 2014. "A search-theoretic model of the rental and homeownership markets," Journal of Housing Economics, Elsevier, vol. 26(C), pages 33-47.
    8. 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.
    9. Han, Lu & Strange, William C., 2015. "The Microstructure of Housing Markets," Handbook of Regional and Urban Economics, Elsevier.

    More about this item

    Keywords

    real estate brokers; commission rate; matching technology; mismatch costs; idiosyncratic tastes;

    JEL classification:

    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis
    • H0 - Public Economics - - General
    • D0 - Microeconomics - - General

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