Conflicts of Interest and Agent Heterogeneity in Buyer Brokerage
88 Pages Posted: 18 Mar 2021 Last revised: 7 Sep 2022
Date Written: March 16, 2021
This paper investigates the incentives of agents working with buyers (buying agents) under the fixed percentage commission system (FPCS) and the implications on housing market outcomes. Our model shows that the absence of a binding contract creates a risk of losing clients for buying agents, which helps mitigate the conflict of interest between buying agents and their clients. Both the buying agent’s prediction accuracy regarding their client’s reservation prices and the level of tolerance given by the buyer to the buying agent affect the binding force. Results from simulations and empirical analyses using house transactions in Canada support our model predictions.
Keywords: Real estate, Housing, Conflict of interests, Buyer brokerage, Non-binding principal-agent relationships
JEL Classification: D82, L85, R21, R31
Suggested Citation: Suggested Citation