The Housing Market and Real Estate Brokers

Suryamani Mantrala and Edward Zabel

Real Estate Economics, 1995, vol. 23, issue 2, 161-185

Abstract: The major development in this paper concerns the failure, in earlier studies, to consider interaction between alternative methods of arranging sales in the housing market. A seller may market a house by direct negotiations with buyers, without the intermediation of real estate brokers, or by listing the house with a broker. A rational seller would choose the option which offers the higher expected return on the house. In a sequence of models we argue that the seller's option of a method of sale induces competitive pressure in the choice of the commission rate by the broker. We also consider the split rate in a multiple listing system, ease of entry of brokers and the cartel hypothesis as applied to brokers. We conclude that the competitive pressure of direct negotiations between sellers and buyers, relative free entry of brokers and the inappropri‐ateness of the cartel hypothesis cast serious doubt about a general consensus of opinion that the brokerage system is characterized by price fixing, excessive commissions and excessive marketing costs.

Date: 1995
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