Sorting, Franchising and Real Estate Brokerage Firms

Posted: 24 Sep 2006

See all articles by John D. Benjamin

John D. Benjamin

American University - Kogod School of Business

Peter T. Chinloy

American University - Department of Finance and Real Estate

Daniel T. Winkler

University of North Carolina (UNC) at Greensboro - Department of Accounting and Finance

Abstract

Real estate markets remain localized and reflect differences by region. With a large number of brokerage firms and a smaller number of franchisors, a testable hypothesis is whether in equilibrium fees and royalties are equal to the additional return to the franchisee. If fees are set uniformly across the country, economic rents may be earned in specific local markets. Some franchisees may earn excess profits from the franchise arrangement. Empirical results for 1,143 United States residential brokerage firms in 2001 show standardized uniform franchising costs, cover any added returns to franchises in the Midwest and South. Excess returns are present for franchisees in the Northeast. The probability of being a franchisee increases with size and scale.

Keywords: franchise, residential brokerage, self-selection, profitability, regional variation, fees, royalties

Suggested Citation

Benjamin, John D. and Chinloy, Peter and Winkler, Daniel T., Sorting, Franchising and Real Estate Brokerage Firms. Journal of Real Estate Finance and Economics, Vol. 34, No. 2, 2007, Available at SSRN: https://ssrn.com/abstract=932074

John D. Benjamin

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Department of Finance
Washington, DC 20016
United States
(202) 885-1892 (Phone)
(202) 885-1946 (Fax)

Peter Chinloy (Contact Author)

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-1951 (Phone)
202-885-1992 (Fax)

Daniel T. Winkler

University of North Carolina (UNC) at Greensboro - Department of Accounting and Finance ( email )

Greensboro, NC 27412
United States
336-256-0122 (Phone)

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