A SIMPLE SEARCH AND BARGAINING MODEL OF REAL-ESTATE MARKETS

This paper examines the impact of brokers on buyers' and sellers' sear ch behavior and on the transaction prices in real estate markets. It i s shown that the seller and the buyer search less intensively if the h ouse is listed with a broker. The seller gets a higher price when he e mploys a broker, but the increase in price is smaller than the commiss ion fee. More specifically, the portion of the commission covered by t he increase in price is directly related to the bargaining powers of t he buyer and the seller. In the special case where the price is determ ined according to the Nash bargaining solution, the increase in price is shown to be half of the commission fee. It is also shown that an in crease in the commission rate increases the equilibrium price but decr eases the equilibrium search intensities.