Theory of the Real Estate Brokerage Firm: A Portfolio Approach

Salter, Sean; Johnson, Ken H.; Webb, James R.
April 2007
Journal of Real Estate Portfolio Management;Apr-Jun2007, Vol. 13 Issue 2, p129
Academic Journal
A framework is established in which an investor (the real estate broker) must form a portfolio of two assets (two types of agents), each represented by their returns to the broker. The very risky asset (corresponding to the agent type that has negotiated a split commission contract with the broker) is shown in contrast to the less risky asset (corresponding to the agent type that has negotiated for 100% of the earned commissions in exchange for a periodic fee paid to the broker). Within this framework, the optimal makeup of the real estate brokerage firm is established, thereby providing a comprehensive theory for the existence of real estate brokerage firms based on agent compensation arrangements.


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