Real Estate Brokers and Commission: Theory and Calibrations

Posted: 13 Dec 2012 Last revised: 30 Nov 2013

See all articles by Oz Shy

Oz Shy

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Multiple version iconThere are 2 versions of this paper

Date Written: 2012

Abstract

This paper has two goals: (a) To model and inherent conflict of interest between a seller of a house and the real estate broker hired by the seller. In this environment, the pressure brokers exert on sellers to reduce prices generates faster sales and hence reduces sellers' expected profit. (b) To calibrate the brokers' commission rates that would maximize sellers' expected gain. The calibration results may hint whether the ongoing uniform commission rate reflects collusion among real estate agencies, or should be viewed as competitive.

Keywords: real estate brokers, selling a house, conflict of interest, Middleman, commission, price fixing, loss aversion

JEL Classification: L85

Suggested Citation

Shy, Oz, Real Estate Brokers and Commission: Theory and Calibrations (2012). Journal of Real Estate Finance and Economics, Vol. 45, No. 4, 2012. Available at SSRN: https://ssrn.com/abstract=2188531

Oz Shy (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

HOME PAGE: http://https://www.frbatlanta.org/research/economists/shy-oz.aspx

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