Jonathan A. Wiley

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 brokers profit function. The comparative static results of the model show that a number of factors will have a deterministic influence on the brokers expected profit and, hence, the brokers 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.