Commission Splits in Real Estate Transactions

Posted: 18 Jan 2017

See all articles by Xun Bian

Xun Bian

Longwood University

Bennie D. Waller

Longwood University

Abdullah Yavas

University of Wisconsin - School of Business - Department of Real Estate and Urban Land Economics

Date Written: January 17, 2017

Abstract

We examine commission splits between listing and selling agents in real estate transactions. We construct a theoretical model to show that agency problems arise when a listing agent attempts to maximize his or her payoff while setting the commission split. Mitigation to these agency problems can be achieved through the imposition of a limited duration on listing contracts. Our model produces several testable hypotheses, which are supported by empirical evidence. We find property listings with higher list prices and quick sales are associated with lower commission splits. Commission split is more likely to be higher when the listed property has a high degree of a typicality and/or is overpriced. Additionally, agent-owned properties pay higher commission splits.

Keywords: Agency Theory; Residential Brokerage; Commission Splits; Dual Agency

JEL Classification: D8; J4; K12; L

Suggested Citation

Bian, Xun and Waller, Bennie D. and Yavas, Abdullah, Commission Splits in Real Estate Transactions (January 17, 2017). Journal of Real Estate Finance and Economics, Vol. 54, No. 2, 2017. Available at SSRN: https://ssrn.com/abstract=2900966

Xun Bian (Contact Author)

Longwood University ( email )

201 High Street
Farmville, VA 23901
United States
(434) 395-2231 (Phone)
(434) 395-2203 (Fax)

Bennie D. Waller

Longwood University ( email )

201 High Street
Farmville, VA 23909
United States
434-395-2046 (Phone)
434-395-2203 (Fax)

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

Abdullah Yavas

University of Wisconsin - School of Business - Department of Real Estate and Urban Land Economics ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States

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