Discount Brokerage in Residential Real Estate Markets
Real Estate Economics, June 2012
Posted: 19 Apr 2011
Date Written: April 18, 2011
Transaction costs are thought to affect asset prices and market liquidity, but the direction and magnitude of these effects continues to be the subject of debate. In the single family residential market discount brokers offer to list a house for a lower price and thus reduce the transaction costs associated with obtaining a match. In this paper we obtain empirical estimates of the price and liquidity impact of a seller selecting a discount broker to market a single family residential property. The unique data set allows for the identification of residential properties that were listed by a discount brokerage firm. The empirical results confirm the predictions of our theoretical model. Using a sample of 318,211 listings and 243,625 sales, we find that houses listed by discount brokers sell at prices similar to non-discount brokerage listings, but are less likely to sell and when they do sell, take approximately 3 days longer to sell. The results indicate that lower transaction costs do not impact housing prices in this market, but are related to asset liquidity.
Keywords: Discount Brokerage, Residential, Real Estate Prices, Time on the Market
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