Study Finds Homes Sell Faster Under Exclusive Agency Listing

While the exclusive right-to-sell listing is the most common listing arrangement in residential markets, a new study co-authored by a researcher in Penn State's Smeal College of Business Administration finds that houses sell four percent faster under another agency listing contract-the exclusive agency listing.

The study, "The Impacts of Contract Type on Broker Performance," is co-authored by Abdullah Yavas, associate professor in the Department of Insurance and Real Estate in Penn State's Smeal College of Business Administration. The study, "The Impacts of Contract Type on Broker Performance," has been accepted for publication in Real Estate Economics . He co-authored the paper with Ron C. Rutherford of the University of Texas-San Antonio and Tom M. Springer of Florida Atlantic University.

"Homeowners selling property have two goals: to sell the property for as high a price as possible and as quickly as possible. That's why many homeowners often enter into a contract with a real estate broker, giving the broker the right to sell the property," says Yavas.

For brokers, the preferred category of listing contract is the exclusive right-to-sell contract, which entitles the contracted broker to compensation regardless of who is the procuring cause, including the owner or other brokers. Under an exclusive agency listing, the broker and owner agree that the contracting broker shall be the only (exclusive) broker that will be entitled to a commission and that no other brokers will have a direct contractual relationship with the seller. The seller however, retains the right to sell the property independently of the broker, as in an open listing, and to owe no compensation to the broker, explains Yavas.

"We found that houses sold faster under the exclusive agency contract than the exclusive-right-to-sell contract," says Yavas. "The exclusive agency contract creates a race between the seller and the broker where the winner takes it all. In contrast, the broker earns the commission under the exclusive-right-to-sell contract regardless of who contacts the buyer."

Exclusive agency listings take 4 percent fewer days to sell than exclusive-right-to-sell listings.

"One reason sellers often sign an exclusive right-to-sell contract is that many brokers are reluctant to take an exclusive agency listing and they will not promote it. Thus, only knowledgeable sellers will request an exclusive agency listing," says Yavas.

The study also found that houses sold with exclusive agency contracts sold at a marginally lower price-about one percent. The co-authors were able to test the impact of the contract type on the negotiation outcome by applying various statistical tests to compare the discounts from the listing price (i.e., the ratio of the selling price to the listing price) between the two contract types.

The study shows that if an exclusive agency listing is sold by the owner, the selling price is 96% of the listing price while this ratio is 96.4% of the selling price if the listing is sold by a Multiple Listing Service (MLS) member broker. Both of these concessions are marginally higher than the selling price to listing price ratio of 96.5% for the exclusive?right?to?sell listings.

"It is likely that exclusive agency listings sell at a discount because if the house is sold by the owner, the owner is probably willing to share the commission savings with the buyer to achieve the sale," says Yavas. "If the house is sold by the agent, the agent is less likely to negotiate to push the price higher because if the negotiation fails, then the broker once again gets involved in a race with the seller and assumes the risk of not earning a commission."

Penn State's Smeal College of Business is a pre-eminent learning community, shaping business practice for tomorrow's converging economies. With 6,400 undergraduates, Smeal College has the third largest undergraduate business program in the country. In addition to the nationally ranked undergraduate program, Smeal College is home to internationally ranked MBA and Executive Education Programs. Smeal College's seven academic departments, as well as its ten research centers and institutes, present programs and studies in leading-edge areas such as converging economies, supply chain management, e-business, and entrepreneurship along with the traditional areas of marketing, management, finance, real estate, accounting and information systems.