Incentives and Performance in Real Estate Brokerage

This article has two objectives. One is to offer a theoretical model to study how the difference in commission structures affects the performance of agents at full-commission firms (e.g., RE/MAX agents) relative to other agents. The other is to provide an empirical test of the relative performance of full-commission agents. We predict that in equilibrium the selling price and the expected time it takes to sell a listing through a full-commission agent are the same as they are with a traditional agent. Our theoretical predictions are supported by our empirical results.     

Bargaining Strength and Property Class in Office Markets

This paper examines the influence of bargaining power and property class on the prices of heterogeneous goods. Specifically, it explores the impact of buyer and seller characteristics on the transaction prices of office properties. The empirical model is based on the work of Harding, Rosenthal, and Sirmans (2003), which developed a method to distinguish between the impact of buyer and seller attributes on bargaining power and the choice of otherwise unidentified price effects (i.e., property class) in the context of hedonic price models. The data set contains information on transaction prices of office properties in Cook, DuPage, and Lake Counties, Illinois from 1995 to 1997. The results reveal systematic differences in bargaining power and property class for certain groups of buyers and sellers contained within the sample.     

Valuing the Redevelopment Option Component of Urban Land Values

This study draws from the redevelopment, real option, and urban spatial growth literatures to explore the spatial dynamics of the components of house prices. More specifically, the paper proposes that the capitalized value of the option to redevelop housing at the property level can be estimated by incorporating the likelihood of exercising the redevelopment option (the probability of redevelopment) into spatial and nonspatial hedonic house price models. Accordingly, option values are estimated for properties across the spectrum of the housing life cycle. Results from the study reveal a substantial level of spatial variation and clustering in the predicted option values, indicating that location is a major determinant of redevelopment and real option values. Furthermore, the results provide new evidence in support of the theoretical construct that properties purchased for immediate redevelopment are only valued for the underlying land.     

Racial Discrimination and Mortgage Lending

Looking at a sample of conventional fixed-rate mortgages, this paper examines whether lending practices are consistent with the competitive hypothesis that the racial and ethnic composition of the borrower??s neighborhood affects the contract rate charged only to the extent that these characteristics objectively influence the probability of the loan defaulting or prepaying. Our results, however, reject this hypothesis, showing instead that borrowers in predominantly black neighborhoods pay a significantly higher contract rate than is consistent with evidence of their behavior.     

Directional Land Value Gradients

The standard urban model supports the concept of a constant land price gradient throughout the urban area. It is a reasonable conjecture that the land price gradient would vary with direction from the CBD. The variation in the gradient could be caused by a number of factors, but the idea that the land price gradient is flatter along radial transportation routes than in other directions is widely recognized even though there is little rigorous empirical work supporting this belief. This paper will examine the structure of urban land prices with a focus on the land price gradient as a function of the direction around the center of the city using a piecewise linear function. The added flexibility in the gradient estimate gained by this approach reveals a dramatically varying directional land price gradient.

Real Estate Brokerage Earnings: The Role of Choice of Compensation Scheme

One of the more interesting characteristics about the real estate brokerage industry is that workers are presented with a choice regarding the sort of compensation scheme under which they want to work. An overwhelming majority of workers choose what is referred to as a commission split scheme in which the salesperson splits any commission that they earn with a supervising broker that they generally are required to work under. In this case the firm provides office support and administrative services to the salesperson and, in return, the salesperson must split any commissions that they earn with the firm. Under the alternative compensation scheme, workers pay a substantial up-front “desk” fee to the firm and then are allowed to keep 100% of any commissions that they earn. In spite of the large volume of research on the determinants of real estate salesperson earnings, to our knowledge there are no studies analyzing the choice of compensation scheme and its impact on the earnings of real estate salespersons. This study uses data from the 2001 and 2003 Membership Surveys of the National Association of REALTORs® to analyze the impact of the real estate salespersons’ choice of compensation scheme on their earnings.     

Housing Regulation,Externalities and Residential Property Prices

This article examines the effects of quantity restrictions on residential property prices in the presence of neighborhood externalities. A Brigham Young University policy limiting students’ location choices provides a natural experiment for studying the externality and quantity restriction effects on property values. A flexible hedonic model is used to control for nonstudent population spatial sorting by type. The estimates show significant positive quantity restriction and student agglomeration effects on student housing prices. There are also significant differences in the negative student externality across nonstudent neighborhoods, with the quantity restriction reinforcing (offsetting) the student price premium (discount) at the boundary.     

Chicago's Office Market: Price Indices, Location and Time

Conventional wisdom holds that overbuilding and high vacancy, coupled with curtailed tax benefits, have led to reduced office property values since the late 1980s. Yet assertions that office real estate values fell between the mid-1980s and mid-1990s are not supported everywhere by convincing evidence. This study offers a hedonic analysis of Chicago area office properties that sold from 1986 through 1993. Whereas earlier office market studies generally have been based on rents, this study focuses on variation in actual sale prices (although the prices were not adjusted for financing differences). The transaction-based index estimated here does not support the existence of a nominal office property price level decline beginning in the mid-to-late 1980s. In fact, the results show an upward trend in office property values after 1986, with nominal declines in office market price levels occurring only in the latter portion of the study period.     

A Housing Price Model with Endogenous Externality Location: A Study of Mobile Home Parks

This research explores the impact of mobile home parks on the value of single-family homes. This is the first study that empirically analyzes the effect of mobile home parks on property values. The empirical methodology used attempts to address the potential identification problem that exists within this study; it is possible that mobile home parks are located in areas of relatively lower land values or next to other land uses that impact property values. To address this identification problem, mobile home park locations are treated as endogenous within the model and the mobile home parks are identified as being located in residential or non-residential areas. The results suggest a negative effect on the selling price of single-family dwellings in close proximity to mobile home parks located in residential areas.     

Dynamics of the urban zoning structure: An empirical investigation of zoning change

This study empirically examines the role of land prices in the decision to rezone vacant land from one land use to another. Although the study of zoning and related issues is well documented, this is one of only a handful of studies that directly examines zoning changes. Unlike previous studies that treat zoning as static, acknowledging only that the current allocation of land differs from the market allocation, this study examines if the allocation of land will be reallocated (rezoned) toward a market allocation. The study is unique in that it analyzes zoning changes on an individual property basis and is based on transactions of vacant parcels. The data are drawn from a single municipality, Chicago—Illinois, allowing a uniform definition of zoning classification rather than trying to combine data under multiple zoning authorities.