Understanding sellers’ agents in the residential property market

Abstract

Buyers in the property market often use an agent who is employed by the seller to assist their home searches. This unique and widely used agency arrangement in the property market is known as “sellers’ agents”. While principal-agent theory advocates that buyers should directly hire their agents (i.e., buyers’ agents) to do the home-hunting, search theory however implies that sellers would employ their agents (i.e., sellers’ agents) to increase the probability of the sale and selling prices. Although sellers’ agents and buyers’ agents are two very distinct institutions, many previous studies assume that their agency characteristics are identical and provide limited insights on how such a seemingly subtle but crucial agency arrangement affects transaction outcomes. Using transaction data from Wuhan China, this study disentangles the effects of the buyers’ and sellers’ agents on properties’ selling prices and their time on the market. The findings indicate that on average transactions conducted by sellers’ agents will be associated with a significant selling price premium of around 3.4%. As a critical test, we further show that the transactions completed by sellers’ agents with selling price premiums will have a shorter marketing time than those completed by buyers’ agents.

Keyword : sellers’ agents, search theory, overpricing, time on the market, online listing, second-hand real estate market