A theoretical development of agent specificity

ABSTRACT

This study is a short research note that sets the theoretical foundation of an agent’s contribution to a real estate sale transaction. We argue that an agent’s contribution with specialized knowledge or information over a transaction makes an agent irreplaceable. We term this unique contribution agent specificity based on the transaction cost theory, where the production is delegated to an outsider with specialized skills or knowledge. For the modeling part, we base our theoretical model on the fundamental matching model in search theory. Our agent can be a listing or buyer’s agent, and we proxy agent specificity by the level of effort an agent invests in a transaction. We find that an agent will increase her effort by an increase in the property’s sale price, and this effort would increase during boom periods. However, an agent would contribute less to the transaction during bust periods.

KEYWORDS:

• Agent effort
• agent specificity
• matching theory
• search theory
• transaction cost theory

Acknowledgments

This research was funded by the Early Career Grant at St. Cloud State University (Cost Center 211140).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

This research is a theory paper based on a mathematical model. It is not an empirical paper and does not entail any data.

Supplementary material

Supplemental data for this article can be accessed online at https://doi.org/10.1080/08882746.2023.2289777.

Notes

1. The Multiple Listing Service (MLS) is a platform for real estate agents to share their listing information. Before the web-based service was launched, this service was mainly proprietary to agents to market and trade.

2. The notion of efficient pricing and prices relates to the statistical idea of variance. A smaller variance between the benchmark price is considered efficient, while a greater departure from the benchmark price is inefficient. This concept is different from an efficient production of minimum input and maximum output.

3. In Williamson’s (1994) transaction cost theory, a governance form is determined by the weight of the specificity of an asset or the cost to produce a product. If an asset is specific (i.e., possession of proprietary technology, skills, or know-how, etc.) so that it cannot be produced in-house, production is outsourced to a party specializing in this asset’s production. However, it is more cost-efficient to produce a product in-house if it does not require specificity or when the firm or individual has the required skill sets. According to Williamson (1994), a governance form is determined between the trade-off of relying on asset specificity and cost-efficiency by constantly shifting the governance form between the market (i.e., outsourcing) and in-house production. While these two governance forms are relevant to the extreme ends of the governance form spectrum, Williamson (1994) argues that the hybrid form accommodates both the market and in-house production form. Hybrid governance would shelter both cost-efficient self-production and the production of parties that possess asset-specific skills.

Additional information

Funding

The work was supported by the Early Career Grant [211140].

Notes on contributors

Seongsu David Kim

Dr. Seongsu David Kim, Ph.D., is an Associate Professor of Finance and the Minnesota Chair in Real Estate at Herberger Business School, St. Cloud State University. As a real estate economist, his primary interest revolves around the notion of value, or in other words, approaching real estate from an investment perspective.

Andrew T. Carswell

Dr. Andrew T. Carswell, Ph.D., is a Professor of Housing Policy and Management in the Department of Financial Planning, Housing, and Consumer Economics at the University of Georgia. Dr. Carswell’s work covers a variety of housing-related topics, but he is particularly known for mortgage fraud and property management research.