A Case for Percentage Commission Contracts: The Impact of a “Race” Among Agents (P.8)

Cooperating Agents and Search for New Listings

In the analysis above we assumed that the seller has the ability to list his property with an MLS. Thus, the model involves no listing agents and the commission split between the listing agent and the selling agent. Miceli (1991) evaluates the effect of different commission splits between agents who cooperate in MLS sales. Assuming that a percentage commission structure exists between the seller and the listing agent, Miceli shows that the commission split which maximizes the seller’s utility under the percentage contract is one which offers the full commission to the agent who brings the buyer to the sale. Similarly, Yavas and Colwell (1999) argue in favor of opening the MLS to the public and enabling sellers to directly post their property with an MLS without the need to go through a listing agent.

Although board of realtors would fight any attempt to lose their control of the access to the MLSs, there some signs that sellers are slowly gaining opportunities not available to them in the past. One development has been the emergence of buyer agents in the industry. As a result, the sellers now can attempt to sell their properties themselves and offer a commission (about half of the typical commission rate) to agents who secure a buyer for the property. The other has been the emergence of discount brokers who utilize the internet technology and allow the sellers skip the listing agent by providing them an access to the MLS for a flat fee and pay a commission if an agent secures a buyer.12 The seller retains the right to sell the house himself/herself at no additional cost and pays a commission if an agent procures a buyer. In this system, the seller is able to set the commission rate that she agrees to pay the procuring agent. These innovations closely mimic the structure of our model and suggest opportunities for further empirical testing of agency problems in brokerage markets.

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