The Role of Transaction Costs in Impeding Market Exchange in Real Estate

36 Pages Posted: 15 Apr 2013 Last revised: 9 Feb 2015

Xun Bian

Longwood University

Bennie D. Waller Jr.

Longwood University

Scott Wentland

Bureau of Economic Analysis (BEA)

Date Written: January 31, 2015

Abstract

We examine the role transaction costs play, particularly the costs related to search and bargaining, in impeding or delaying real estate market transactions. In a theoretical model, we show that agents’ incentives are influenced by transaction costs in a way that will increase a home’s marketing duration and decrease the probability a home will sell. Exploiting a decade of transactions from Virginia, we use a variety of empirical modeling techniques to estimate the effect of transaction costs on a property’s time on market (TOM) and its probability of sale. We find that factors associated with high search and bargaining costs increase a home’s TOM and reduce the probability that it will sell.

Keywords: transaction cost, real estate, agent incentives

JEL Classification: K00, R30, R20

Suggested Citation

Bian, Xun and Waller, Bennie D. and Wentland, Scott, The Role of Transaction Costs in Impeding Market Exchange in Real Estate (January 31, 2015). Available at SSRN: https://ssrn.com/abstract=2250450 or http://dx.doi.org/10.2139/ssrn.2250450

Xun Bian

Longwood University ( email )

201 High Street
Farmville, VA 23901
United States
(434) 395-2231 (Phone)
(434) 395-2203 (Fax)

Bennie D. Waller Jr. (Contact Author)

Longwood University ( email )

201 High Street
Farmville, VA 23909
United States
434-395-2046 (Phone)
434-395-2203 (Fax)

HOME PAGE: http://www.benniewaller.com

Scott Wentland

Bureau of Economic Analysis (BEA) ( email )

1441 L Street NW
Washington, DC 20910
United States

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