Causations of Dual Agency Transactions? Buyer Choices or Broker Manipulation: Theory and Evidence. Lingxiao Li and Bennie D. Waller. Under review at Management Science.
The typical real estate transaction involves a seller and buyer (principals), brokers and salespersons (agents). However, in a dual agency transaction, the buyer and seller are being represented by the same brokerage firm and possibly the same agent. This study offers a theoretical model and empirical evidence to disentangle the underlying factors that impact the likelihood of a dual agency transaction. Given the increasing proportion of such transactions, an important questions is are these transactions amenable to influence or manipulation by one or more parties or such transactions coincidental? Specifically, who is driving a dual agency transaction? Do listing agents influence the seller to incorporate prohibitive conditions or restrictions in the listing contract reducing the arrival rate of buyers and increasing the likelihood of a dual agency transaction? It may be irrational behavior or instructions from the seller limit the actions of the listing broker which also may reduce the arrival rate of buyers. Is it the intentional actions of the buyer or are dual agency transactions that stem from buyer behavior circumstance or situational driven? The findings suggest that listing brokers may engage in debatable practices that increase the probability of dual agency, such as offering a lower commission split, negotiating longer listing contracts and limiting the amount of information provided in the MLS listing to the public and/or cooperating brokers. Specifically, a listing broker offering a lower commission to cooperating brokers (2-2.5% or 2.5-3%) increases the likelihood of a dual agency transaction by 54% and 43%, respectively, relative to a comparable property offering a rate higher than 3% to the cooperating broker. The ability to strategically promote internal listings becomes weaker when buyers are more aware of cognizant of dual agency transactions.
The Impact of Agent Experience on Cooperating Broker’s Commission Rate and the Effect of Price and Liquidity in a Simultaneous Framework. Bennie D. Waller. Working paper.
The homo economicus or economic man model asserts that economic agents are rational and pursue optimal utility outcomes, such as income/wealth, for ones own self-interest while minimizing their efforts. However many have criticized this theory as being too rigid as not all economic agents tie their efforts to payoff (e.g., teachers, social workers), however if such an individual’s effort does not impact their payoff, such an economic man will shirk as much as possible – regardless of the impact on others (Brekke and Nyborg, 2010). Such a homo economicus might be used to describe some portion of real estate brokers. In fact, there is a significant literature surrounding the moral hazard and asymmetric information disparities that exist between the principal (seller) and agent (broker).
As with most employed individuals, real estate agents are no different in that they seek to maximize their income, which in the real estate brokerage profession is based on commission. A real estate broker’s generation of income is dynamic in that it is typically a percentage of property selling price. That is, commission revenue is the product of the selling price multiplied by a percentage of the selling price. Holding all else constant, it is tautological to suggest that a broker will benefit from garnering larger commission rates (or keeping a higher percentage of the commission split if the property is sold by a cooperating broker) on higher priced properties. However, it is not that simple as the broker and the homeowner (seller) negotiate the terms of the listing contract including the commission rate and commission rate split for cooperating broker. The ability to list premium properties and charge a higher commission rate is largely driven by an agent’s reputation which consists of a variety of components, but one of the more significant ones is likely to be agent experience. This research examines broker experience and commission split for the selling broker and the impact on marketing outcome. Preliminary findings reflect that the objectives of the seller and the listing agent may not be compatible in certain instances.
The Impact of Presidential Elections on the Marketing Outcomes of Residential Properties. Geoffrey K. Turnbull, Bennie D. Waller and Justin Contat.
Using a data set from a central Virginia MLS, we show that the uncertainty in the housing market before an election has statistically significant effects on both price and time on market, though the sign and magnitude of the changes depend upon the type of election. For presidential elections without an incumbent running, we find that election uncertainty is associated with a decrease in both price and time on market, both before and after the election. In contrast, for presidential elections with an incumbent and gubernatorial elections, we find that election uncertainty is associated with an increase in price and time on market, both before an after the election. Our results also suggest that these effects are likely to persist even after the election has occurred.