Conflicts of Interest and the Realtor Commission Puzzle

50 Pages Posted: 17 Jun 2016

See all articles by Maisy Wong

Maisy Wong

The Wharton School, University of Pennsylvania

Parag A. Pathak

Massachusetts Institute of Technology (MIT) - Department of Economics

Panle Jia Barwick

Cornell University - Department of Economics

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Date Written: November 18, 2015

Abstract

This paper documents uniformity in real estate commission rates across markets and time using a dataset on realtor commissions for 653,475 residential listings in eastern Massachusetts from 1998-2011. Newly established real estate brokerage offices charging low commissions grow more slowly than comparable entrants with higher commissions. Properties listed with lower commission rates experience less favorable transaction outcomes: they are 5% less likely to sell and take 12% longer to sell. These adverse outcomes reflect decreased willingness of buyers’ agents to intermediate low commission properties (steering) rather than heterogeneous seller preferences or reduced effort of listing agents. While all brokerage agencies prefer properties with high commissions, offices with large market shares purchase a disproportionately small fraction of low commission properties. The negative outcomes for low commissions provide empirical support for regulatory concerns that steering reinforces the uniformity of commissions.

Suggested Citation

Wong, Maisy and Pathak, Parag A. and Barwick, Panle Jia, Conflicts of Interest and the Realtor Commission Puzzle (November 18, 2015). The Wharton School Research Paper No. 93. Available at SSRN: https://ssrn.com/abstract=2797346

Maisy Wong (Contact Author)

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Parag A. Pathak

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Panle Jia Barwick

Cornell University - Department of Economics ( email )

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