The Optimal Duration of Real Estate Listing Contracts

Thomas J. Miceli

80 citations0/0 files storedReal Estate Economics

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Housing Market and Economics Law, Economics, and Judicial Systems Auction Theory and Applications

Abstract

The length of the real estate listing contract is examined as a means of providing an incentive for brokers to act in the best interest of home sellers. A limitation on the duration of the contract accomplishes this objective by imposing a cost (namely, the foregone commission) on brokers who fail to complete a sale before the contract expires. The seller's optimal contract duration balances the benefits of improved incentives against the expected cost of renegotiating a new contract in the event of a failure bv the broker.

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References

1979Moral Hazard and Observability 1986Equilibrium Unemployment as a Worker Discipline Device 1983An Analysis of the Principal-Agent Problem 1992An Analysis of the Principal-Agent Problem 1979On Moral Hazard and Insurance 1985The Economics of Franchise Contracts 1986Investment, Moral Hazard, and Occupational Licensing 1981A Search Model of Real Estate Broker Behavior

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2008Real Estate Returns and Risk with Heterogeneous Investors 1994Economics of Brokerage: An Overview 2008A Model of Time‐on‐Market and Real Estate Price Under Sequential Search with Recall 1993Mispricing and Optimal Time on the Market

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