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Residential Real Estate Brokerage Efficiency from a Cost and Profit Perspective

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Abstract

Using 1994–1995 microeconomic data from the National Association of Realtors (NAR), this article estimates cost and profit X-efficiency levels in the residential real estate brokerage market using traditional and Bayesian stochastic frontier models. We find that firms err more from failure to maximize profits than from failure to minimize costs. To determine what characteristics influence efficiency, we perform a regression analysis. The results show that franchising and firm age are associated with increases in efficiency, while MLS affiliation and producing a balanced output of listings and sales decrease performance. Finally, we estimate economies of scale and find compelling evidence that firms are operating at increasing returns to scale.

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Authors and Affiliations

  1. School of Business, Samford University, 800 Lakeshore Drive, Birmingham, AL, 35229

    Randy I. Anderson

  2. Department of General Business, College of Business Administration, Southeastern Louisiana University, Hammond, LA, 70402

    Danielle Lewis

  3. Economics, Finance, and Legal Studies, College of Commerce and Business Administration, The University of Alabama, Tuscaloosa, AL, 35487-0224

    Leonard V. Zumpano

Authors
  1. Randy I. Anderson
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  2. Danielle Lewis
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  3. Leonard V. Zumpano
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Anderson, R.I., Lewis, D. & Zumpano, L.V. Residential Real Estate Brokerage Efficiency from a Cost and Profit Perspective. The Journal of Real Estate Finance and Economics 20, 295–310 (2000). https://doi.org/10.1023/A:1007889209994

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  • DOI: https://doi.org/10.1023/A:1007889209994

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