Building Social Capital at the Expense of Principals: Evidence from Residential Real Estate Agent Trading Networks

45 Pages Posted: 3 Nov 2018

See all articles by Patrick Smith

Patrick Smith

San Diego State University

Velma Zahirovic-Herbert

University of Georgia

Karen M Gibler

Georgia State University - Department of Real Estate

Date Written: 2018

Abstract

Principal-agent problems are common in industries, such as real estate, that employ agents. Social capital theory explains how an agent’s incentive to maximize revenue working with other agents on multiple transactions may be a disincentive when negotiating to capture a price surplus in individual transactions. We find that when two agents who have worked together represent clients in a single-family house transaction, the property sells for a lower price. This suggests that agents maximize their income over time by building a network of cooperating agents. The effect persists throughout the market cycle.

Keywords: agency issues, social networks, social capital

JEL Classification: R00

Suggested Citation

Smith, Patrick and Zahirovic-Herbert, Velma and Gibler, Karen M, Building Social Capital at the Expense of Principals: Evidence from Residential Real Estate Agent Trading Networks (2018). Journal of Real Estate Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3264938 or http://dx.doi.org/10.2139/ssrn.3264938

Patrick Smith (Contact Author)

San Diego State University ( email )

5500 Campanile Drive
San Diego, CA 92182-8236
United States

Velma Zahirovic-Herbert

University of Georgia ( email )

Athens, GA 30602-6254
United States

Karen M Gibler

Georgia State University - Department of Real Estate ( email )

P.O. Box 4020
Atlanta, GA 30303-4020
United States

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