Market Distortions when Agents are Better Informed: The Value of Information in Real Estate Transactions

Steven D. Levitt, Chad Syverson

NBER Working Paper No. 11053
Issued in January 2005
NBER Program(s):Corporate Finance

Agents are often better informed than the clients who hire them and may exploit this informational advantage. Real-estate agents, who know much more about the housing market than the typical homeowner, are one example. Because real estate agents receive only a small share of the incremental profit when a house sells for a higher value, there is an incentive for them to convince their clients to sell their houses too cheaply and too quickly. We test these predictions by comparing home sales in which real estate agents are hired by others to sell a home to instances in which a real estate agent sells his or her own home. In the former case, the agent has distorted incentives; in the latter case, the agent wants to pursue the first-best. Consistent with the theory, we find homes owned by real estate agents sell for about 3.7 percent more than other houses and stay on the market about 9.5 days longer, even after controlling for a wide range of housing characteristics. Situations in which the agent's informational advantage is larger lead to even greater distortions.

download in pdf format
   (1343 K)

email paper

A non-technical summary of this paper is available in the March 2005 NBER Digest.  You can sign up to receive the NBER Digest by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w11053

Published: Steven D. Levitt & Chad Syverson, 2008. "Market Distortions When Agents Are Better Informed: The Value of Information in Real Estate Transactions," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 599-611, 08. citation courtesy of

Users who downloaded this paper also downloaded* these:
Bernheim and Meer w13796 Do Real Estate Brokers Add Value When Listing Services Are Unbundled?
Levitt w12152 An Economist Sells Bagels: A Case Study in Profit Maximization
Hsieh and Moretti w9208 Can Free Entry be Inefficient? Fixed Commissions and Social Waste in the Real Estate Industry
Gyourko w14708 Understanding Commercial Real Estate: Just How Different from Housing Is It?
Hendel, Nevo, and Ortalo-Magné w13360 The Relative Performance of Real Estate Marketing Platforms: MLS versus
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us