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

Sumit Agarwal

National University of Singapore

Jia He

Nankai University - School of Economics

Tien Foo Sing

National University of Singapore (NUS) - Department of Real Estate

Changcheng Song

National University of Singapore (NUS)

Date Written: December 2015

Abstract

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

Agarwal, Sumit and He, Jia and Sing, Tien Foo and Song, Changcheng, Why Do Real Estate Agents Buy Houses at Lower Prices? Cherry Picking or Bargaining Power (December 2015). Available at SSRN: https://ssrn.com/abstract=2588149 or http://dx.doi.org/10.2139/ssrn.2588149

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

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

Jia He

Nankai University - School of Economics ( email )

Wenjin Road
Tianjin, TianJin 300071
China

Tien Foo Sing

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore

Changcheng Song (Contact Author)

National University of Singapore (NUS) ( email )

1 Arts Link, AS2 05-37
Singapore, 117568
Singapore
+6565166018 (Phone)

HOME PAGE: http://https://sites.google.com/site/songchch02/

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