Non Uniform Percentage Brokerage Commissions and Real Estate Market Performance
The effect of non-uniform commissions on the market duration of residential properties is ambiguous. While the broker's search effort is positively related to the size of the percentage commission, so is the seller's reservation price. Each of these relationships imply a time-on-market effect in the opposite direction of the other. A powerful statistical technique, survival regression, is employed to determine which relationship dominates. Because the probability that a property will sell at any given point in time is inversely related to the size of the percentage commission, we conclude that the negative search effects associated with low commission rates are more than offset by the positive reservation price effects.
Larsen, J. E.,
& Park, W. J.
(1989). Non Uniform Percentage Brokerage Commissions and Real Estate Market Performance. American Real Estate and Urban Economics Association Journal, 17 (4), 422-438.