The Role of Commission Rates and Specialization in the Determination of Real Estate Agent Income

By Winkler, Daniel T.; Jud, G. Donald et al. | Journal of Housing Research, January 1, 2007 | Go to article overview

The Role of Commission Rates and Specialization in the Determination of Real Estate Agent Income


Winkler, Daniel T., Jud, G. Donald, Wingler, Tony, Journal of Housing Research


Abstract

This paper explores the performance of residential real estate agents and the commission structure under which they operate. This study reveals the interrelationship among the number of properties sold by an agent, the dollar volume of sales, and real estate agent income. This research shows that the ability to generate listings is essential to generating higher levels of income in residential real estate sales. The listings become the platform from which agents leverage their human capital in the generation of income. However, the ability to generate listings is a skill related to experience, as well as to the firm and market environment.

The real estate brokerage industry is a major employer in the United States. The National Association of Realtors® (NAR) estimates there are approximately 2.5 million real estate professionals licensed by the various states. These agents are employed in 236,000 real estate broker office locations across the county. About 1.2 million real estate professionals are NAR members. In 2004, the sale of new and existing homes amounted to approximately $1.9 trillion. The NAR estimates that the housing sector directly accounts for 15% of U.S. gross domestic product (GDP).

This paper explores the performance of residential real estate agents and the commission structure under which they operate. While numerous studies have examined broker earnings and commission rates, the current study develops a testable model that relates the number of housing transactions, sales, and commissions to the source of the listing.1 In the model, agents choose to focus their efforts on developing listings, selling other agents' houses, or selling their own listings. Since these activities require specific and distinct skills, agents who perform these three activities have differing demographic characteristics, and the characteristics of firms with which the agents are affiliated differ as well. Empirical evidence from the 2005 NAR Membership Survey supports the testable model and shows that agent and firm characteristics are related to the source of the listing sale.

The Market for Brokerage Services

Agents act on the behalf of clients in the sale and purchase of their clients' houses. In a world of perfect information where sellers know the potential buyers and maximum prices they are willing to pay, home sellers and buyers would not need agents. In reality, however, information is far from perfect, and agents provide information to sellers and buyers in exchange for a commission rate based on the sales price of the property.

Firm Output, Revenue, and Listing Specialization

A number of studies have examined production and revenue at the brokerage-firm level. Jud, Rogers, and Crellin (1994) find that the number of homes sold by residential real estate firms increases with the size of the metropolitan area, firm size and age, and MLS affiliation. For the average firm, net revenue increases 9.0% because of franchise affiliation. Operating efficiency studies of real estate firms have been undertaken by Zumpano, Elder, and Crellin (1993), Zumpano and Elder (1994), and Anderson, Fok, Zumpano, and Elder (1998) among others. Zumpano, Elder, and Crellin find a U-shaped cost curve with modest economies of scale. Zumpano and Elder report that a balanced mix of listings and sales are optimal at the firm level and minimize cost. Their study, however, does not examine specialization at the agent level. Anderson et al. find that real estate brokerage firms operate inefficiently because of suboptimal input allocations and failure to operate at constant returns to scale, and firm size is positively related to efficiency levels.

Richins, Black, and Sirmans (1987) utilize cluster analysis to explore the operations of brokerage firms. They find that firms tend to self-select one of three strategic orientations for the generation of revenue: (1) obtaining listings that are sold by other firms; (2) selling properties that are listed by other firms; and (3) selling the firm's own listings. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

The Role of Commission Rates and Specialization in the Determination of Real Estate Agent Income
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.