Discount Brokerage in Residential Real Estate Markets

28 Pages Posted: 25 Aug 2012

See all articles by Ronald Rutherford

Ronald Rutherford

University of South Florida - College of Business - Department of Finance

Abdullah Yavas

University of Wisconsin - School of Business - Department of Real Estate and Urban Land Economics

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Date Written: Fall 2012

Abstract

Transaction costs are thought to affect asset prices and market liquidity, but the direction and magnitude of these effects continue 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 article 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 318,221 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 three days longer to sell. The results indicate that lower transaction costs do not impact housing prices in this market, but that they are related to asset liquidity.

Suggested Citation

Rutherford, Ronald and Yavas, Abdullah, Discount Brokerage in Residential Real Estate Markets (Fall 2012). Real Estate Economics, Vol. 40, Issue 3, pp. 508-535, 2012. Available at SSRN: https://ssrn.com/abstract=2135973 or http://dx.doi.org/10.1111/j.1540-6229.2011.00319.x

Ronald Rutherford (Contact Author)

University of South Florida - College of Business - Department of Finance ( email )

Tampa, FL 33620
United States

Abdullah Yavas

University of Wisconsin - School of Business - Department of Real Estate and Urban Land Economics ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States

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