James E. Larsen

The Incentive Effects of Flat‐Fee and Percentage Commissions for Real Estate Brokers

This paper analyzes the incentive affects of flat-fee and percentage commission systems from the perspective of the economic theory of agency. Under a plausible set of assumptions the systems provide equivalent incentives. However, the relative desirability of the two systems depends upon the pricing strategy employed and factors specific to the individual. In general, neither system perfectly aligns the interests of the agent with those of the property-owner. A surprising result of the analysis is that the optimal listing price when an agent is employed may be below the first-best price. The first-best price, or residual maximizing solution to the principal-agent problem from the perspective of the property-owner, is the solution that would occur if the agents interests were perfectly aligned with those of the principal. This study suggests that the use of a percentage versus a flat-fee commission may be due to information costs rather than price discrimination on the part of brokers. Copyright American Real Estate and Urban Economics Association.

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 brokers search effort is positively related to the size of the percentage commission, so is the sellers 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. Copyright American Real Estate and Urban Economics Association.

Silence is Not Golden: Firm Response and Nonresponse to Consumer Correspondence

When a consumer contacts a company, it provides the firm with an opportunity to begin a dialogue. If a problem occurred with a good or service, a customer complaint provides a company with the opportunity to correct the problem and perhaps retain a customer. A consumer compliment provides the opportunity to turn a satisfied consumer into a brand advocate. Yet surprisingly nearly 30% of the companies in this study allowed this vital opportunity to go to waste.

The impact of buyer‐type on house price

Purpose – This paper aims to report the results of a study conducted to determine whether investors systematically pay less for single‐family houses than do buyer/residents.Design/methodology/approach – Data from 3,443 single‐family house transactions were subjected to regression analysis.Findings – Investors in this study paid 13.24 percent less, on average, than buyers who reside in the property.Research limitations/implications – The study was limited to transactions occurring during a single year in one American city. Future research could test whether the results apply in other locations. The study did not consider the influence of seller‐type on transaction price. Future studies could incorporate this facet of the transaction. The results have implications for property tax authorities and fee appraisers because the presence of investors in a housing market may introduce a two‐tiered transaction set which could distort the assessment process and/or the indicated value calculated by fee appraisers usi...

Price effects of surface street traffic on residential property

Purpose - – The purpose of this study is to gauge and compare the impact of surface street traffic externalities on residential properties. Limited previous research indicates that negative externalities dominate for single-family houses. Our objective is to verify that this result applies to our sample, and to determine if the same result extends to multi-unit rental properties. Design/methodology/approach - – Hedonic regression is used to analyze data from 9,680 single-family house transactions and 455 multi-unit rental properties to measure the influence of surface street traffic on the price of the two property types. Findings - – Houses located adjacent to an arterial street sold at a 7.8 per cent discount, on average, compared to similar houses located on collector streets. Limiting the analysis to houses adjacent to an arterial street (where traffic counts were available), price and traffic count are negatively related. The results for multi-unit rental dwellings are dramatically different. Multi-unit properties adjacent to an arterial street sold at a 13.75 per cent premium compared to similar properties on collector streets, and when limiting the analysis to properties on arterial streets, no significant relationship was detected between price and traffic volume. Originality/value - – This is the first empirical study of the influence of surface street traffic on both single-family houses and multi-unit rental residential property. Evidence is provided that traffic externalities impact the two types of properties quite differently. To the extent that this result applies to other locations, the authors suggest planners may be able to use such information to reduce the negative effect of traffic externalities on residential property associated with changes that will increase traffic flow.

Senior citizen's bargaining power in residential real estate markets

Purpose - – Researchers have previously examined, with mixed results, whether experience in the single-family house market enhances a buyers bargaining power by comparing prices paid by relatively young first-time buyers and experienced buyers. The present study aims to extend this basic line of inquiry, but the focus here is on both buyers and sellers at the other end of the age spectrum as the authors investigate the bargaining power of senior citizens (age 65 or older) in the single-family house market. Design/methodology/approach - – Hedonic regression is used to analyze approximately 6,200 transactions that occurred in Montgomery County, Ohio during the years 2007 through 2009. Findings - – No difference is discovered between prices paid for a single-family house by senior citizens and other buyers in the sample. However, senior citizens in this study sold property for 5.9 percent less than other sellers, Research limitations/implications - – Data limitations prevent the authors from specifying the precise reasons underlying the results concerning senior house sellers, but numerous possibilities are presented. Testing whether the results apply in other local housing markets would be a valuable extension of this research, as would identification of the factors associate with any bargaining power imbalance. Practical implications - – The economic principle of substitution suggests that assets that provide identical utility should command identical prices, but for heterogeneous goods the relative bargaining power of the principals may be important in the price formation process. The present study offers interesting results that in the case of senior buyers support the law of one price, but in the case of senior sellers, bargaining power differences dominate. Originality/value - – This is the first study to investigate bargaining power in residential real estate markets by comparing transaction prices involving senior citizens and other buyers and sellers.

An empirical investigation of the market duration of repossessed single‐family houses

Purpose – The purpose of this paper is to determine if lender experience in disposing of repossessed single‐family houses in the local market is significantly related to the probability a property will sell. In addition, other factors that are significantly related to the market duration of repossessed houses are identified.Design/methodology/approach – The Cox proportional hazard model is used to analyze transaction data for 2,099 single‐family houses in Dayton, Ohio. Title to each of these properties was obtained by lenders through foreclosure. The study period approximates the first three years of the subprime mortgage crisis in the USA: 2007‐2009.Findings – The marketing efforts of lenders with more local property disposition experience are found to be superior to the efforts of less experienced lenders. The results also indicate that the selling rate function increased over the study period, and there is seasonality in the data which is consistent with lenders attempting to limit holding costs.Resear...

Brand and Message Recall: The Effects of Situational Involvement and Brand Symbols in the Marketing of Real Estate Services

Due to the commission structure there is little price competition in residential real estate brokerage services, and the local Multiple Listing Service (MLS) equalizes access to market information among brokerages. Real estate firms are thus faced with the challenge of standing out in a crowded market with few points of real competitive differentiation. Results of a telephone survey with 2,107 respondents reveal a relatively high level of top-of-mind awareness for the major firms, regardless of transaction intention. Recall for smaller firms was correlated with transaction intention consistent with theory of situational involvement. Overall, recall appears to be linked with the use of a powerful brand symbol.

Installment land contracts, single-family houses and bargaining power

Purpose The purpose of this paper is to add to the single-family house bargaining power literature by investigating the bargaining power of the principals when the seller provides financing with an installment land contract (ILC). Design/methodology/approach Generalized spatial two-stage least squares regression is used to analyze data from 998 ILC transactions and 19,376 traditionally financed transactions all of which occurred in Montgomery County, Ohio between January 2002 and March 2011. Findings The results indicate that buyers using an ILC operate at a bargaining power disadvantage. In our sample, they paid approximately 6.64 per cent more, on average, than did buyers using traditional financing to purchase similar housing. This result occurred despite the fact that the included ILC transactions were limited to those carrying an interest rate that was above the Federal Housing Administration (FHA) rate at the time of contract origination. Research limitations/implications The study is limited to transactions that occurred in one county of a Midwestern state over a ten-year period. Therefore, the results may not apply in other locations. Valuable extensions of the current study would include an investigation to determine if similar results apply in other local housing markets. In addition, an examination of ILC transactions for other property types (e.g. undeveloped land, commercial properties, etc.) which may involve more sophisticated vendees could prove interesting. Originality/value This is the first study to investigate bargaining power in the single-family house market by focusing on ILC transactions. In this rather unique market segment, evidence of an imbalance of bargaining power is found. The results suggest that prospective purchasers, real property investors, fee appraisers, county auditors and others interested in determining the value of a single-family house using the transaction price of comparable properties take precautions in identifying comparable properties. The results indicate that house acquisitions facilitated with an ILC may not be a good comparable for a traditionally financed property and vice versa.

Satisfaction with neighbors and neighborhood housing prices

Purpose – The purpose of this study is to test the hypothesis that neighborhoods characterized by satisfying social relationships among residents have higher housing prices than areas where people are less satisfied with their neighbors.Design/methodology/approach – A semi‐logarithm regression model is used to test whether the extent of satisfaction with neighbors is significantly related to transaction prices of houses in 59 neighborhoods in Dayton, Ohio.Findings – The results are consistent with, and more specific than, previous studies linking social capital to neighborhood stabilization. Resident satisfaction with their neighbors is found to be an important determinant of property value controlling for housing characteristics.Practical implications – The findings support stabilization and economic development strategies that seek to enhance social relationships in urban neighborhoods.Originality/value – This study is the first effort to examine the impact of relations among neighbors on housing prices...