Efficiency and Incentives in Residential Brokerage

Abstract

The literature on broker intermediation in residential real estate has shown positive pricing effects associated with the use of a broker and mixed results as far as the pricing effects of nonstandard commission structures. On the premise that real estate broker incentives emanate from two primary sources, factors that increase broker operating efficiency and negotiable features arising from the relationship between the listing broker and the seller, this study assesses the degree to which these incentives affect the marketing time, probability of sale, and selling price of single-family houses. Of particular interest, this study investigates efficiency and broker intermediation effects on residential property associated with a broker concentrating his listings into a service area. Empirical results show that properties within an individual broker’s GIS-determined service area are more likely to sell, sell faster, and sell with an associated price premium. These effects are more concentrated in the market for higher priced homes. Also, additional compensation favorably motivates the broker with higher-priced properties, but has no effect on the sale of lower-priced properties.