Examining Both Sides of the Transaction: Bargaining in the Housing Market

Abstract

This article examines the bargaining power of market participants in the housing market with special interest in the outcomes of individuals compared to real estate agents. Prior studies examine agents’ sales of their own properties and find that they obtain higher prices than their clients, which is notable because it suggests a conflict of interest. In addition to reexamining agents’ sales after correcting for a simultaneity issue, we consider both agents’ sales and purchases of their own properties as well as all other market participants. Agents’ purchases offers direct evidence of their ability to transaction residential real estate while in competition with other market participants. We also examine the interactions between individuals, agents and other market participants such as companies using a bargaining model that mitigates an endogeneity concern inherent in prior studies. The results demonstrate that agents hold bargaining power relative to individuals but not companies. We also find that agents’ are able to buy low and sell high across the economic cycle from 2002 to 2013.