Salesperson Bonuses and Their Impact on Residential Property Price and Time on Market

Abstract. This paper investigates the impact upon both sales price and marketing time of offering a bonus to the selling agent of property. Recognizing and controlling for the different incentives inherent in pricing versus in all senses listing strategies, this article engages hedonic pricing and time-on-market (TOM) estimations to lay open the relationship among property price, peculiarity TOM and salesperson bonuses. The issues suggest that properties offering a bonus experience one as well as the other a price discount and stretch outed TOM.

This article is the winner of the Real Estate Brokerage/Agency Manuscript Prize (sponsored by dint of the Center for the application of mind of Real Estate Brokerage/Agency at Cleveland State University) not absented at the 2003 American Real Estate Society Meeting.

Introduction

What does offering a bonus to the selling go-between accomplish? At first glance, it would present the appearance logical that the added incentive of a bonus would cause potential selling factors to expend greater effort marketing these properties, resulting in either an increased attribute price, or a decreased marketing time, or both1 This na??ve view, however, fails to consider the different listing strategies available to venders of property. In particular, this view does not completely account for the effects of pursuing pricing or in all senses listing strategies, as outlined in Benjamin and Chinloy (2000) A vender pursuing a pricing strategy places his or her characteristic on the market at or below estimated market value. A vender pursuing an exposure strategy places his or her attribute on the market at a price above the estimated market value and proffers an incentive of some mark to the selling broker. According to either strategy, the resulting increased activity by dint of potential selling brokers should enhance the quality and quantity of proffers on the property.

This work has sum of two units goals. First, the paper empirically trials for both the impact upon property sales price and marketing time of offering a bonus to the selling go-between This question was originally brought to our attention by dint of brokers working in the sample area who press outed concern over claims regarding the effectiveness of bonuses. Clearly, firms offering bonus programs, or competitors of of that kind firms, should be interested in whether these programs work as advertised (i.e., whether they work as the na??ve view would suggest) Additionally, venders of property should also be interested in whether the follows they achieve by offering a bonus are worth the coin spent. The second goal is to examine these empirical ensues for a better understanding of the pricing and in all senses listing strategies outlined above.

Using 1998 comparable sold data from the Montgomery Alabama market, and controlling for the neighborhood of a bonus, a hedonic pricing mould is constructed to test for the impact of a bonus upon property sales price. In addition, time-on-market (TOM) is analyzed to investigate the link between employing a bonus and peculiarity marketing time. The results indicate that properties offering a bonus to the selling agent experience a price discount and stretch outed marketing times. A review of the relevant literature appears in the nearest section. The section that tread in the steps ofs discusses the relationship between salesperson bonuses and the competing listing strategies mentioned above. This is followed through a description of the data and methodology, and a discussion of the empirical be deriveds Some concluding remarks are given in the last section.

Literature Review

To date, Benjamin and Chinloy (2000) appear to be the alone authors to take a comprehensive view of listing strategy. They specifically examine whether or not accepting buyer agency is more likely to arise as asking price increases. Since buyer agency is a potentially of great price proposition, the authors view the use of buyer agency as an exposing strategy. In addition, the authors proof for the impact of the probability of not offering buyer agency, which can be seen as a pricing strategy upon property marketing time. Their findings move that sellers should pursue a pricing strategy, as oppos to an exposing strategy.

A key component in examining the efficacy of any listing strategy is the ability to rule for the degree of above- or below-market pricing. Haurin (1988); Asabere, Huffman and Mehdian (1993); and Jud Seaks and Winkler (1996) provide examples of in what manner to control for this phenomenon. In general, a vector of statistically significant housing characteristics is used to obtain a fitted estimate of peculiarity price. This predicted value is then compared to peculiarity listing price to arrive at the stage of above or below market pricing.2

The utilization of hedonic pricing originals is well understood; therefore, this topic requires no further exposition. However, studies concerning attribute marketing time have failed to arrive at a consensus upon the proper methodology for measuring the impact of variables of interest upon property TOM. These studies can be rent into two categories based upon the type of model exerciseed Most early studies, and more [i]or[/i] less more recent studies, model quality TOM via ordinary least squares (OLS) estimation. Belkin, Hempel and McLeavey (1976); Janssen and Jobson (1980); Asabere, Huffman and Mehdian (1993); and a working paper through Alien, Faircloth, Forgey and Rutherford (2000) among others, provide a sampling of these works.