Real Estate Brokers and Commission: Theory and Calibrations
Posted: 13 Dec 2012 Last revised: 30 Nov 2013
Date Written: 2012
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: Suggested Citation