The Impact of Dual Agency
Boston University - Department of Finance & Economics
Crocker H. Liu
Arizona State University
Jarl G. Kallberg
New York University (NYU) - Department of Finance
Journal of Real Estate Finance and Economics, Vol. 35, No. 1, 2007
In 1984, the State of Hawaii's legislature enacted a law making it mandatory for real estate agents engaged in dual agency relationships (i.e., when the seller's and the buyer's agents are employed by the same real estate firm) to disclose this fact to both parties in writing. The assumption was that the dual agency relation was damaging to the seller. This study analyzes the effect of disclosed and undisclosed dual agency, and the impact of the legislation, using data prior to and after the legislation (approximately 2,000 residential sales in each period). To account for property characteristics, hedonic models for the log of sale price and for the log of days on market are estimated in each period. Our empirical analysis suggests that dual agency significantly reduced the sale price, but the influence was much smaller after the legislation (8.0% versus 1.4%). In addition, dual agency significantly decreased the time on market by approximately 8.5% pre-legislation and 8.1% post-legislation, although the influence was much stronger for lower priced residences. These results are confirmed using a seemingly unrelated regression model.
Keywords: brokerage, property law, real estate services
Date posted: January 30, 2007
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