The Disciplining Effect of Concern for Referrals: Evidence from Real Estate Agents

Abstract

Real estate agents rely on clients for referrals to generate future business; this paper examines whether concern for referrals disciplines agents. We compare results for sellers who move to another area (and are less likely to provide referrals) with results for sellers who remain in the area (and are more likely to provide referrals). We find that moving-away sellers' houses have a higher sale rate, sell faster and sell for less (even after controlling for moving-away sellers' greater impatience). We also provide evidence that the disciplining effect of concern for referrals is stronger for agents who place a greater value on reputation. Lastly, among sellers who are better at evaluating and monitoring agents, we see less of the high sell rate, low sale-price effect.

Keywords: Information asymmetry; Incentives; Reputation; Referral; Experts; Real estate market; Hazard analysis; Days on market