Is the Compensation Model for Real Estate Brokers Obsolete?
Thomas J. Miceli
University of Connecticut - Department of Economics
Katherine A. Pancak
University of Connecticut - School of Business - Center for Real Estate and Urban Economic Studies
C. F. Sirmans
Florida State University - Department of Risk Management, Insurance, Real Estate & Business Law
Journal of Real Estate Finance and Economics, Vol. 35, No. 1, 2007
This study examines the traditional compensation model for real estate brokers under which both the listing and buyer brokers are paid by the seller based on a percentage of the property sales price. We argue that this model has not evolved to reflect contemporary legal agency relationships and technology-driven information availability. It therefore creates substantial transactional inefficiencies for buyers and sellers at both the matching and bargaining stages of a transaction. While there is evidence that market forces are pushing for a change in the status quo, there is also evidence that the brokerage industry is resisting this change by pursuing anti-competitive policies and laws. We explore the economics of the current and alternative compensation structures and suggest policy implications regarding anti-competitive behavior in the brokerage industry.
Keywords: agency, brokerage, multiple listings, percentage commission
Date posted: January 28, 2007