Client Externality Effects of Agents Selling Their Own Properties

Abstract

This study is the first to examine the principal-agent issues surrounding how agents' efforts to sell their own properties affect their efforts to sell concurrently listed client properties. The principal-agent model shows that listed agent-owned properties induce agents to worker harder over all, but diminish effort dedicated to marketing concurrently listed client properties, leading to reduced liquidity and/or lower selling prices for those properties. The empirical results show that client properties competing with agent-owned properties remaining on the market 30% to 46% longer and sell for 1.8% less than properties whose agents have no such conflict of interest.

Keywords: Principal/agent conflict; Asymmetric information; Moral hazard