Price Signals and Uncertainty in Commercial Real Estate Transactions
35 Pages Posted: 6 Jul 2017 Last revised: 7 Jul 2017
Date Written: July 3, 2017
Using a sample of CCIM designees and candidates in an experimental setting, this study examines the impact of broker signaling in commercial real estate transactions. It also explores the effect of certainty of closure in commercial real estate transactions. Findings suggest brokers are able to influence transaction pricing. Moreover, detailed analysis reveals that when a signal is above a reference point implied by previous transactions, the strength of the signal matters; privately communicated signals from reliable sources have significantly greater impact than signals which are made widely available. Additionally, we find an approximately 10% premium in transactions with lower certainty of closure than one with high certainty. The latter result varies by transactional participant type; owner/developers require a larger premium than institutional sellers.
Keywords: Commercial Real Estate, Broker, Signaling, Uncertainty, Execution Risk
JEL Classification: G11, G24, R33
Suggested Citation: Suggested Citation