Equilibrium of Housing and Real Estate Brokerage Markets Under Uncertainty

The purpose of this paper is to develop a model of the real estate brokerage and housing markets with imperfect information. The paper considers general equilibrium in these markets with and without a multiple listing service. Input prices are found to affect the equilibrium housing price, brokerage commission, and split factor. The introduction of a multiple listing service is found to have several important effects. The MLS causes housing value to increase, but its effect on the commission rate is indeterminate. Contrary to the results of another paper, MLS brokers, on average, will likely undertake more search for both buyers and listings than will a non-MLS broker. The primary reasons are related to the greater efficiency of search in the MLS context.     

Competition and Efficiency in Transacting: The Case of Residential Real Estate Brokerage

This paper examines the functioning of the market for brokerage services for residential real estate. The central issue addressed is whether the manner in which brokerage services have traditionally been provided and priced is consistent with efficiency. In approaching this question, the paper first describes the activities usually associated with the brokerage function and develops criteria for the efficient provision of brokerage services. After the structural characterisitcs and pricing practices of the brokerage industry are analyzed, a model of brokerage firm competition is developed. The principal finding is that the traditional absence of price competition among brokers may have led to an inefficiently large commitment of resources to the brokerage industry, supported by excessive rates for consumers of brokerage services. These results stem from the way that competitive pressures emerge when price competition is largely suppressed.     

Market Share in the Real Estate Brokerage Industry

This paper is concerned with the factors that determine the market share of listings and the market share of sales for brokerage firms. Models are developed and tested in a SMSA that conveniently corresponds exactly to a particular Multiple Listing Service area. Indices of firm specialization and market concentration were computed in addition to more conventional characterizations of the market and the data used in the study.
The regression results reveal a small degree of consistency in the impacts of the explanatory variables over the two years of the study and over the listing and sales markets. The number of salespeople is the most consistently significant variable. Indeed, market share per salesperson appears to be a non-monotonic function of the number of salespeople. The presence of a franchise and the quantity of display advertising are occasionally significant. Classified advertising, Yellow Pages advertising, and open houses all do not significantly affect market share per salesperson.     

Residential Real Estate Brokerage Efficiency and the Implications of Franchising: A Bayesian Approach

This paper provides substantial evidence that real estate brokerage firms choosing to franchise are more cost-efficient than firms that remain independent. It uses 1995 cost data obtained from a nationwide survey of real estate brokerages to analyze the differences in firm efficiency across firm type—franchised and independent. We estimate a single stochastic cost frontier using Bayesian statistics and measure firm efficiency relative to that frontier conditional on firm type. The results indicate that real estate brokerages are relatively efficient, implying a competitive market, but franchised brokerages are substantially more efficient than their independent counterparts.     

The Principal-Agent Relationship in Real Estate Brokerage Services

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.     

On the Price Comovement of U.S. Residential Real Estate Markets

We investigate the comovement among Case‐Shiller Home Price Indices for 14 metropolitan areas between 1992 and 2008. We define the portion of this comovement deemed as fundamental (excessive) as the covariation that can (cannot) be attributed to common fundamental factors directly influencing real estate prices. We find that i) comovement among these markets considerably increased over the sample period, especially in the late 1990s; ii) this increase is mostly attributable to underlying systematic real and financial factors, consistent with a greater fundamental integration of those markets; and iii) excess comovement is a less important factor than commonly believed. We discuss the implications of these results for the evolution of U.S. real estate prices over the last two decades and the ongoing credit crisis.     

The Real Estate Brokerage Market: A Critical Reevaluation

This paper presents an analysis of the theories and evidence regarding the structure and performance of the market for real estate brokerage services. Some of the theoretical models found in the literature appear to suffer from logical inconsistencies, while others lack empirical support for their underlying assumptions and/or their predictions of market inefficiencies. Moreover, several important legal and institutional changes that have occurred recently have not been given sufficient attention in the existing literature.
Although some new evidence on this market is presented here, additional empirical research is warranted in at least two areas: the current pricing structure and the underlying production and cost functions of the real estate brokerage industry.     

Non-Uniform Percentage Brokerage Commissions and Real Estate Market Performance

The effect of non-uniform commissions on the market duration of residential properties is ambiguous. While the broker's search effort is positively related to the size of the percentage commission, so is the seller's reservation price. Each of these relationships imply a time-on-market effect in the opposite direction of the other. A powerful statistical technique, survival regression, is employed to determine which relationship dominates. Because the probability that a property will sell at any given point in time is inversely related to the size of the percentage commission, we conclude that the negative search effects associated with low commission rates are more than offset by the positive reservation price effects.     

Measuring Residential Real Estate Liquidity

There are many factors, other than price alone, that may affect the liquidity of real estate. This study develops a liquidity measure based on the Cox proportional hazard technique, a statistical model widely used in the epidemiologic and social sciences. The odds ratio, along with an estimate of market value for a home, are used to construct a liquidity measure. This measure can extract from the data a rich statistical profile of the variables that affect liquidity.     

The Integration of Commercial Real Estate Markets and Stock Markets

This paper tests whether commercial real estate markets (both exchange-traded and non-exchange-traded) are integrated with stock markets using multifactor asset pricing models. The results support the hypothesis that the market for exchange-traded real estate companies, including REITs, is integrated with the market for exchange-traded (non-real-estate) stocks. Moreover, the degree of integration has significantly increased during the 1990s. However, when appraisal-based returns (adjusted for smoothing) are used to construct real estate portfolio returns, the results fail to support the integration hypothesis, although this may reflect the inability of these estimated private market returns to accurately proxy for commercial real estate returns. Interestingly, the growth rate in real per capita consumption is consistently priced in both commercial real estate markets and stock markets, whereas previous studies have found mixed evidence on the role of consumption in explaining ex ante stock returns.     

美国房地产经纪市场运行效率综述

房地产经纪市场的运行效率是房地产市场发展水平的重要标志,也是衡量其是否成熟的主要标准,研究房地产经纪市场的运行效率具有重要的意义。由于目前对我国房地产经纪市场运行效率的研究基本上处于空白,借鉴美国房地产经纪市场运行效率的研究成果,可以为开展我国房地产经纪市场运行效率的研究提供指导。     

Concentration and Market Structure in Local Real Estate Markets

The competitiveness of the residential real estate brokerage industry has attracted much attention. Anecdotal evidence suggests some local markets are concentrated, yet no systematic market structure study has been conducted. We collected cross‐sectional data on real estate brokers in 90 diverse markets across the United States and collected longitudinal data for Louisville, Kentucky. In medium and large markets, no evidence exists that market concentration might create problems for competition. Small markets, on average, have higher Herfindahl‐Hirschman Indexes than medium and large markets. The longitudinal data reveal that many small brokers sell a house or two one year and none the next year.     

Regime Shifts in Asian Equity and Real Estate Markets

This paper applies a new statistical technology for identifying regime shifts to analyze recent data on real estate and equity markets in eight developing Far Eastern countries in the 1992–1998 time period. We find that regime shifts in volatility occur in the summer of 1997; however, most of the regime shifts in returns occur in the spring of 1998. While the clustering of regime breaks does not seem to follow any obvious pattern, the country's exposure to trade and firm leverage are important. An analysis of Granger causality suggests that, in most cases, equity returns cause real estate returns but the converse is not true. We also find two-way causality in volatility, suggesting that a common factor drives volatility in these markets. Finally, we provide evidence that the regime shifts generally imply higher relative risk for real estate securities after the estimated breaks.     

Contagion Channels between Real Estate and Financial Markets

The recent crisis has demonstrated the linkages between asset classes within a country as well as the association between assets internationally. We provide for a better understanding of some of these linkages by conducting an empirical investigation of the channels underlying the risk of contagion between real estate investment trusts (REITs) and stocks in the United States. We test for three financial mechanisms potentially driving contagion. A behavioral dimension in the crisis propagation is also examined by considering investor sentiment and panic risk. We find that contagion prevails between REITs and stocks and that this phenomenon is driven by behavioral and liquidity mechanisms.     

Economies of Scope and Density in the Market for Real Estate Brokerage Services

Using a multiproduct translog cost function, this paper examines the case for economies of scope and density in the market for residential real estate brokerage services. Earlier research that treated output as a homogeneous commodity reported modest economies of scale for this industry. The results of this study suggest that the composition of output is an important source of these scale economies, rather than simply the size of the firm. The economies of scope which we find imply that a balanced mix of listing and sales is the least costly type of operation, a result borne out by the product mix found in our sample. The results also show product-specific diseconomies of scale, suggesting that specialization in either listing or sales may be sub-optimal under the current institutional arrangements present in the market. Finally, market density appears to be, at best, only a nominal source of savings for real estate brokerage firms.     

The Effect of State Licensing Regulations on the Real Estate Brokerage Industry

An argument is often made that occupational licensure protects members of the regulated industry by limiting supply and raising earnings. The purpose of this study is to examine entry barriers within the real estate brokerage industry and to determine the effect of differing state entry requirements on the supply of practitioners, earnings, and quality of service provided. A simultaneous system of equations is developed where the number of licensees per capita, earnings, and quality are jointly estimated. Two-stage least squares results support the premise that the consumer rather than the industry benefits from real estate prelicensing regulation with a higher quality of service. Significant evidence is not found to support the idea that the real estate industry regulations are self-serving.     

Correlation Dynamics and Determinants in International Securitized Real Estate Markets

We find the correlation movements among eight developed securitized real estate markets and among their stock markets are quite synchronized over the period from 1995 through 2012. There is a high degree of correlation dependence with many of the realized correlation series subject to regime switching. Moreover, international correlations of public property returns could be significantly explained by five real estate variables that include global real estate securities market volatility, co‐existence of real estate investment trust (REIT) influence, underlying direct real estate return performance differential, real estate securities volatility differential and real estate securities market size differential after controlling for macroeconomic influence and stock market effect. The importance of the control and real estate variables in explaining the return correlations varies across the economies examined.     

The Real Estate Brokerage Market and the Decision to Disclose Property Condition Defects

This article presents a theoretical model of the decision to disclose property condition defects by a real estate broker. The model introduces the costs and benefits of disclosure into the broker's profit function. The comparative static results of the model show that a number of factors will have a deterministic influence on the broker's expected profit and, hence, the broker's decision to disclose. Whether voluntary disclosure occurs depends upon the costs of repairing the defect, prevailing market conditions, commission rates and the legal environment in which the broker operates.     

A Comparative Anatomy of Residential REITs and Private Real Estate Markets: Returns,Risks and Distributional Characteristics

Real Estate Investment Trusts (REITs) are the only truly liquid assets related to residential real estate investments. We study the behavior of U.S. Residential REITs over the past three decades and document their return characteristics. REITs have somewhat less market risk than equity; their betas against a broad market index average about 0.58. Decomposing their covariances into principal components reveals several strong factors. Residential REIT characteristics differ to some extent from those of the S&P/Case‐Shiller (SCS) private real estate markets. This is partly attributable to methods of index construction. Our examination of REITs suggests that investment in residential real estate is far more risky than what might be inferred from the widely followed SCS series. Although the SCS and REITs indicate little support for being able to predict each other, there is strong evidence of self‐predictability for the series.