The Real Estate Brokerage: Commissioned Sales and Market Values

Peter Chinloy
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Peter Chinloy: Leavey School of Business Administration University of Santa Clara Santa Clara, California 95053, http://business.scu.edu/

Journal of Real Estate Research, 1988, vol. 3, issue 2, 37-51

Abstract: This paper develops a valuation model of the real estate brokerage firm. A brokerage has a positive market valuation, while having a negligible book value. Options theory is used to value the firm. The firm writes an option by taking a contingent claim on income generated, through the commission split. The firm holds other options, including the right to modify the commission split. A valuation model for the firm permits a hiring strategy to be developed. Brokers vary by characteristics such as experience. Whether it is better to hire an experienced licensee over a rookie depends on the expected future career with the firm, commissions generated, and the achievement of sales targets. The value of a superstar to the firm is determined, to permit incentive structures on the commission to be generated.

JEL-codes: L85 (search for similar items in EconPapers)
Date: 1988
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Citations: View citations in EconPapers (4)

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