A theoretical development of agent specificity

Abstract

ABSTRACT This study is a short research note that sets the theoretical foundation of an agent’s contribution to a real estate sale transaction. We argue that an agent’s contribution with specialized knowledge or information over a transaction makes an agent irreplaceable. We term this unique contribution agent specificity based on the transaction cost theory, where the production is delegated to an outsider with specialized skills or knowledge. For the modeling part, we base our theoretical model on the fundamental matching model in search theory. Our agent can be a listing or buyer’s agent, and we proxy agent specificity by the level of effort an agent invests in a transaction. We find that an agent will increase her effort by an increase in the property’s sale price, and this effort would increase during boom periods. However, an agent would contribute less to the transaction during bust periods.