 The Principal‐Agent Relationship in Real Estate Brokerage ServicesReal Estate Economics, 1992, vol. 20, issue 1, 89-106 Abstract: This article investigates the principal‐agent relationship between the owner of a house and her real estate broker. The principal's (owner's) problem is to design a contract that induces the agent (broker) to adopt a selling strategy that maximizes the owner's expected return. A sequential search model is utilized to analyze this principal‐agent relationship. Three different systems for paying the broker are considered: fixed‐percentage commission, flat‐fee, and consignment. Both the discount factors of the owner and the broker and the net costs of ownership incurred while attempting to sell the house play a central role in determining the nature of the optimal contract. The analysis demonstrates that the fixed‐percentage commission system is the only one of the three systems considered that can induce a first‐best, incentive‐compatible contract. A numerical analysis provides insights regarding the effect of the fixed‐percentage commission system on competition in the real estate brokerage industry. Date: 1992 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:reesec:v:20:y:1992:i:1:p:89-106 Ordering information: This journal article can be ordered from Access Statistics for this article Real Estate Economics is currently edited by Crocker Liu, N. Edward Coulson and Walter Torous More articles in Real Estate Economics from American Real Estate and Urban Economics Association Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.