Why Do Real Estate Agents Buy Houses at Lower Prices? Cherry Picking or Bargaining Power
47 Pages Posted: 2 Apr 2015 Last revised: 10 Jan 2016
Date Written: December 2015
Real estate agents play an important intermediary role in housing markets. We use a merged transaction dataset that identifies houses purchased by registered real estate agents (salespersons) and other buyers in Singapore to empirically test the hypothesis that real estate agents use information advantages to buy houses at bargained prices. We estimate that agents bought their own houses at prices that are 2% lower than comparable houses bought by other buyers. Discounts for houses bought by agents for their own use have diminished after the new regulatory regime has been introduced in 2010. We compare agents’ transactions that involve two different groups of sellers. The first group includes weak sellers, who are individuals facing time pressure to sell their current houses before moving into new houses, and distressed sellers affected by lawsuits, and the second group includes strong sellers, such as investors who sell houses for positive investment returns. We find no evidence that agents use information advantages to “cherry pick” weak sellers in housing transactions. However, our results support the bargaining power hypothesis that agents use information advantages to obtain lower prices when buying their own houses from individuals and distressed sellers.
Keywords: Housing market, Real estate agents, Information Advantages, Cherry Picking, Bargaining Power, Agency Problem, Market Distortion
JEL Classification: D14, R30, E51
Suggested Citation: Suggested Citation