Leonard V. Zumpano

Buying a House and the Decision to Use a Real Estate Broker

This study examines the factors that affect the decision by home buyers to use real estate brokers and the subsequent effect this decision has on home prices. Buyers with high opportunity costs and the least amount of information about local market conditions are the most likely to use brokers; a finding consistent with the role of the real estate broker as a market intermediary. Not surprisingly, these were some of the same factors that also have a positive impact on selling price. An important finding of this study is that when selection bias is adequately controlled, the real estate broker has no appreciable, independent impact on selling price. This, in turn, suggests a nonsegmented, highly competitive housing market.

Internet use and real estate brokerage market intermediation

Abstract This paper examines the factors that influence the use of the Internet as part of the home buying process and the resulting effect on the efficacy of buyer search. Cross section data acquired from NAR’s 2000 Home Buying and Selling Survey is used to conduct the analysis. This study finds that the use of the Internet as a search tool does not reduces buyer search time. Instead, by reducing within-period search costs, it encourages buyers to search more intensively. By making it possible to learn more about the availability of properties on the market, the Internet allows buyers to visit more properties without a commensurate increase in search duration. The implications of these finding with respect to the future role of brokers as market intermediaries are also examined.

Buyer Brokers: Do They Make a Difference? Their Influence on Selling Price and Search Duration

This study focuses on the role of buyer brokers in the home-buying process by examining the effects of brokerage representation on home selling prices and search duration. The results of this study indicate that real estate brokers, no matter the type, have no independent effect on home prices. The principal effect of broker intermediation is a reduction in buyer search time, compared to for-sale-by-owner transactions. The most important finding, however, is that buyer agents are more effective at reducing search time for their clients than more traditional seller agents or non-agent facilitators. Copyright American Real Estate and Urban Economics Association.

The Market for Residential Real Estate Brokerage Services: Costs of Production and Economies of Scale

Although the market for real estate brokerage services has been the subject of intense scrutiny for many years, little empirical evidence has been forthcoming regarding the performance of this market. This paper employs a translog cost function to model the underlying production function for the residential real estate brokerage industry. The results indicate that, except for very large firms, modest economies of scale persist throughout almost the entire range of output. Our results also indicate that while average firm size is increasing, many real estate firms are too small to take full advantage of the cost reductions possible with a larger scale of operation. Equally important, large firms do not command a competitive advantage over smaller firms, as fer as unit costs are concerned.

Buyer Search Intensity and the Role of the Residential Real Estate Broker

This study examines the impact of the real estate broker on the effectiveness of buyer search by focusing on the linkages between search intensity and the duration of search. How long a buyer searches depends on how sensitive the buyer is to within-period search costs and across-period, sequential search costs. High-income individuals and other homebuyers with high within-period search costs tend to search longer and less intensively. Buyers with high across-period search costs, such as out-of-town buyers, tend to search more intensively. Brokers, by reducing the opportunity costs of within-period search, increase buyer search intensity, which in turn reduces actual search time.

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 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. Copyright American Real Estate and Urban Economics Association.

Residential Real Estate Brokerage Efficiency from a Cost and Profit Perspective

Using 1994–1995 microeconomic data from the National Association of Realtors (NAR), this article estimates cost and profit X-efficiency levels in the residential real estate brokerage market using traditional and Bayesian stochastic frontier models. We find that firms err more from failure to maximize profits than from failure to minimize costs. To determine what characteristics influence efficiency, we perform a regression analysis. The results show that franchising and firm age are associated with increases in efficiency, while MLS affiliation and producing a balanced output of listings and sales decrease performance. Finally, we estimate economies of scale and find compelling evidence that firms are operating at increasing returns to scale.

Corporate Transparency and Firm Growth: Evidence from Real Estate Investment Trusts

Using a panel data set of Real Estate Investment Trusts (REITs), we find corporate transparency to be positively associated with REIT growth. These results suggest that greater transparency facilitates firm growth by relaxing information‐based constraints on external financing. The magnitude of this effect is larger in the equity market than in the debt market. Moreover, the sensitivity of investment to cash flows is decreasing in transparency, evidence that transparency relaxes liquidity constraints. Finally, we find more transparent REITs are less likely to crash.

The Demand and Supply of Mortgage Funds and Mortgage Loan Terms

The supply of and demand for residential mortgages has been the subject of much discussion in the literature. Many of these studies have used single equation, partial adjustment models with the price specified as the contract rate. In this study, two of the assumptions that underlie these previous studies are tested empirically. First, the proper specification of the price of mortgage funds is tested by using both the contract rate alone and all of the terms of the mortgage as the price. Second, the speed of adjustment in the mortgage market is examined by estimating the model in both the instantaneous adjustment and partial adjustment forms. Both of these tests are carried out using a simultaneous equation rather than a single equation model. The empirical results indicate that the contract rate along with the loan initiation fees, the loan-to-value ratio and the maturity is the better specification of price and that the partial adjustment model performs better than the instantaneous model in the mortgage market. Copyright American Real Estate and Urban Economics Association.