Introduction: Real Estate Brokerage
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Each real estate transaction involves a number of strategic decisions. First, the seller needs to determine an optimal asking price under incomplete information without the knowledge of the preferences and valuations of potential buyers. Then, sellers and buyers have to decide on an optimal search strategy, an optimal reservation price and an associated stopping rule. However, a contact between the buyer and seller does not necessarily result in a mutually acceptable match, depending on the reservation prices and outside options of the two sides. Once a contact is achieved, the two sides engage in a bargaining game, again under incomplete information without the knowledge of each other’s reservation prices. If the bargaining results in an agreement, then a sale contract is signed. To finance the purchase, the buyer often chooses among a rich menu of mortgage contracts, where the choices offered by the lender often aims at screeningborrowers of different risk types. Along the way, the...
I would like to thank many anonymous referees and C. F. Sirmans for their help in making this issue possible.
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