Smeal College Professor's Study Points To Less Money For Some Home Sellers
Smeal College Professor's Study Points To Less Money For Some Home Sellers
UNIVERSITY PARK, PA -- Owners of lower-priced homes should be wary of entering into alternative listing arrangements with real estate brokers—namely exclusive agency contracts that allow sellers to avoid paying commission—according to a study co-authored by Abdullah Yavas of Penn State University's Smeal College of Business. The study finds that such arrangements typically result in a lower price-of-sale and therefore less money for the seller.
"The Impact of Contract Type on Broker Performance: Submarket Effects," which is forthcoming in the Journal of Real Estate Research, analyzes the differing impact of the more common exclusive-right-to-sell (ERTS) listing contract and the exclusive agency (EA) listing contract on the performance of a real estate brokers in the cases of lower—(less than $87,500) and higher-priced houses. The contracts are used to formalize the relationship between real estate agency and real estate broker.
In an ERTS listing, the agent or broker receives a commission if the house sells or if a signed purchase-and-sale agreement is obtained prior to the expiration of the listing contract. In an EA listing, the seller reserves the right to sell the property without the use of a broker and not pay a commission, but the listing broker receives the commission if any real estate broker achieves the sale prior to contract expiration.
The study, which was coauthored along with Yavas by R.C. Rutherford of the University of Texas and T.M. Springer of Florida Atlantic University, finds that lower-priced homes in EA arrangements typically sell at a price discount in both broker-effected and owner-effected sales. For higher-priced homes (i.e. those above $87,500), researchers conclude that there is an associated price premium of approximately 1.2 percent when the seller is responsible for the sale, but broker-effected sales see no price advantage or discount.
"The major conclusion of the study is that the type of contract you sign with a broker should be influenced by the value of your home," said Yavas, the William Elliott Endowed University Fellow in the Smeal College's Department of Insurance and Real Estate. "Even with a chance of paying no commission to a broker, the data indicates that sellers of lower-price homes will end up with less money in an EA arrangement. However, if you're trying to sell a higher-price home, there is nothing to lose by selecting an EA contract."
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REPORTERS & EDITORS: For more information, please contact Wyatt DuBois in the Smeal College of Business Media Relations Office at 814-863-3798 or wed112@psu.edu.
Penn State's Smeal College of Business offers highly ranked undergraduate, MBA, executive MBA, Ph.D., and executive education opportunities to more than 5,500 students at all levels. Featuring academic departments of accounting, finance, marketing, insurance and real estate, management, and supply chain and information systems, the college is also home to major research centers such as the Center for Supply Chain Research, the Institute for the Study of Business Markets, the Center for Digital Transformation, the Farrell Center for Corporate Innovation and Entrepreneurship, the Center for Global Business Studies, and the Center for the Management of Technological and Organizational Change.
