Dr. Tingyu Zhou is an Assistant Professor of Real Estate in the Department of Risk Management/Insurance, Real Estate and Legal Studies at Florida State University’s College of Business. Dr Zhou’s research interests include real estate economics and finance, and she has published research in numerous journals, including Real Estate Economics, Journal of Real Estate Economics and Finance, Regional Science and Urban Economics. She currently serves on the board of directors of the Global Chinese Real Estate Congress and associate editor of International Real Estate Review. Dr Zhou earned a B.A. in economics and MBA in finance, both from the University of Macau. Her Ph.D. in finance is from the University of Connecticut.
This paper investigates the incentives of agents working with buyers (buying agents) under the fixed percentage commission system (FPCS) and the implications on housing market outcomes. Our model shows that the FPCS without a binding contract between the buyer and the buying agent could produce outcomes that are more equitable for buyers. The reason is that the absence of a binding contract helps mitigate the conflict of interest between the buyer with her agent and ensures a more faithful behavior of the buying agent. Our model shows that agent heterogeneity plays an important role in determining the binding force of the FPCS in the absence of a binding contract. Results from simulations and empirical analyses using house transactions in Canada support our model predictions.