Commission Splits in Real Estate Transactions
Posted: 18 Jan 2017
Date Written: January 17, 2017
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: Suggested Citation