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Listing Specialization and Pricing Precision

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Abstract

This paper investigates the relationship between property pricing precision (deviation from an expected property value) and specialization in the listing process by agents. It is hypothesized that financially constrained, risk-averse sellers prefer finer gradations of pricing precision, i.e., less deviation from expected property value, and that a set of agents will rise to meet this preference. The findings in this work indicate that agents specializing in listing properties increase pricing precision. The contributions of this work are twofold: (a) it provides a unique and heretofore uninvestigated metric as its dependent variable, thus allowing for further investigation into the brokerage intermediation process beyond the scope of price and marketing time, and (b) it provides an identifiable agent trait that can allow for a better matching of sellers’ preferences with agents’ abilities.

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Notes

  1. The terms “broker” and “agent” are used interchangeably in the literature to describe individuals who take part in the broker intermediation process. We use the term “broker” to represent the qualifying broker, while the term “agent” refers to salespersons. The terms “brokerage,” “broker intermediation,” etc., refer to the actions of brokers and agents in real estate markets.

  2. It is clear that, while not all risk-averse sellers are financially constrained, all rational, financially-constrained sellers should be risk-averse; it is precisely this subset of risk-averse sellers that would be most interested in pricing precision and the group of brokers that can better deliver pricing precision.

  3. To those omitted authors, we extend our apologies. The interested reader may reference Sirmans et al. (2005) for an exhaustive review of hedonic studies in real estate, many of which are brokerage studies.

  4. Colwell and Marshall (1986), p. 597.

  5. This setting significantly mimics the present market.

  6. Other simplifying assumptions here are that sellers of property have forgone the For Sale By Owner (FSBO) market and that buyers are exogenous to the present problem.

  7. Generally speaking, all equities trade with frequency. Since equity securities are homogeneous for a given firm (and a given class for that firm), market liquidity is high. The same is not true for residential property. Here, we additionally assume that prices and marketing times are positively related as in Anglin et al. (2003). That is to say, higher prices are attained with longer marketing periods, while lower prices can easily be garnered in shorter marketing periods.

  8. Time subscripts are omitted for convenience.

  9. Jackson and Lindley (1989) illustrates the predicament we face in this instance, demonstrating that the interpretation of main effects in the presence of an interaction term may be problematic. Jackson and Lindley’s work is based on Gujarati (1970), which provides the theoretical basis for their empirical test. In light of these issues, we include separate estimations for each of the main effects in (7) and (8) as well as the combined model with interaction (9) to allow the reader the most complete and correct analysis.

  10. Again, we recognize that the signs and statistical significance of our main effects, TList and %List, changed in the presence of the interaction term. This is not unusual, as the interaction term “steals” some of its statistical significance from the main effects. In model (9), we cannot interpret the main effects.

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Acknowledgements

We wish to thank C.F. Sirmans (Editor), an anonymous referee of the journal, Tom Springer, Bill Hardin, Tom Lindley, Frank Mixon, and session participants at the 2007 Southern Finance Association Meeting in Charleston, South Carolina, for their comments, suggestions, and assistance. Remaining errors are our own.

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Authors and Affiliations

  1. Middle Tennessee State University, MTSU Box 27, Murfreesboro, TN, 37132, USA

    Sean P. Salter

  2. Florida International University, 11200 SW 8th Street, MARC 230, Miami, FL, 33199, USA

    Ken H. Johnson

  3. University of Southern Mississippi, 118 College Drive, #5072, Hattiesburg, MS, 39406, USA

    Ernest W. King

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  1. Sean P. Salter
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Correspondence to Sean P. Salter.

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Salter, S.P., Johnson, K.H. & King, E.W. Listing Specialization and Pricing Precision. J Real Estate Finan Econ 40, 245–259 (2010). https://doi.org/10.1007/s11146-008-9146-y

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