Observable Agent Effort and Limits to the Innovation in Residential Real Estate
Observable Agent Effort and Limits to Innovation in Residential Real Estate, Justin D. Benefield, C. Stace Sirmans, and G. Stacy Sirmans, Journal of Real Estate Research, 2019 41:1, 1-36
36 Pages Posted: 17 Jun 2019
Date Written: January 31, 2019
Although agent effort is essential and a given in the residential brokerage market, it is difficult to observe and quantify. We estimate a simultaneous systems model using virtual tours as a proxy for observable agent effort. By studying a period during which a visible technological innovation (virtual tour) was introduced to the market, we are able to show relationships between agent effort, price, and time-on-market. Using the introduction to the market of visual tours to proxy agent effort, we find a positive effect on listing price, selling price, and time on-market, with no significant effect on the commission rate. The effect is greater for lower-priced homes (3% positive effect) than for higher-priced homes (1.60% positive effect) and the effect is greater for larger brokerage firms versus smaller firms. A return to the agent possibly lower than the prospective cost of the innovation suggests agency costs at the transaction level that might limit innovation in the industry.
Keywords: real estate commission, virtual tours, agent effort, selling effort, two-stage least squares
JEL Classification: R30
Suggested Citation: Suggested Citation