HOW COMMISSION RATES IMPACT REAL ESTATE AGENT’S PERFORMANCE: AN ECONOMIC REGRESSION OF AGENT PERFORMANCE IN JUPITER

Real estate agents charge their clients a percentage on every property sold and this percentage, or commission, can range from five to six percent. The reason for this difference is unclear. Using an ordinary least squares regression, I attempt to find a connection between real estate agent performance and the amount commission which he or she charges. The premium agent effect assumes that more efficient, or “successful”, agents charge more for their services because they are overall better than the agents who charge a lower commission. Efficiency in this paper is determined by the percent difference in the listing price and sold price as well as the total days the property is on the market. My preliminary results provide strong evidence of the existence of the premium agent effect when agent performance is measured in terms of the percent difference in the listing price and the sold price, but not when measured using the total number of days the property is on the market.