The author constructs a theoretical model to examine the effects of an inherent conflict of interest between a seller of a house and the real estate broker hired by the seller. The model is then used to calibrate the broker's commission rates that would maximize the seller's expected gain. The...

This paper has two goals: (a) To model an inherent conflict of interest between a seller of a house and the real estate broker hired by the seller. In this environment, the pressure brokers exert on sellers to reduce prices generates faster sales and hence reduces sellers’ expected profit. (b)...