The Role of Transaction Costs in Impeding Market Exchange in Real Estate
36 Pages Posted: 15 Apr 2013 Last revised: 9 Feb 2015
Date Written: January 31, 2015
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: Suggested Citation