J Real Estate Finan Econ (2015) 51:1–21
Residential Brokerage in Hot and Cold Markets
Ying Li · Abdullah Yavas
Published online: 15 June 2014
© Springer Science+Business Media New York 2014
Abstract Using a search-theoretical framework, we study how a home seller’s
choice of whether or not to use a broker depends on different market conditions.
We analyze the role that the broker plays in the house-selling process by examining
the expected time-to-transaction, the expected transaction price, and the value of the
transaction. We show that a broker brings less value to the seller in hot markets than
in cold markets.
Keywords Residential brokerage · FSBO · Market tightness
JEL Classifications D83 · L85 · R32
In this paper, we analyze the role of residential brokerage under different market con-
ditions. In particular, we study how the contributions of brokers change in hot versus
cold markets. We define a market as hot (cold) if there are more buyers (sellers) in
that market. The questions we address include: (1) Does hiring a broker have the
same impact on the market transaction price and expected time-to-transaction in hot
and cold markets? (2) What are the implications of market tightness for the seller’s
decision to use a broker or choose FSBO (For Sale By Owner)?
Y. L i
National Mortgage Insurance Corporation, 2100 Powell Street, 12th Floor, Emeryville, CA 94608,
A. Yavas (
University of Wisconsin - Madison, 5251 Grainger Hall, 975 University Avenue, Madison, WI