The Information and Bargaining Roles of Commercial Brokers When Investors Are Uninformed
- 1 Department of Real Estate, J. Mack Robinson College of Business, Georgia State University, Atlanta, GA, USA
- 2 Department of Accounting and Finance, College of Business and Public Administration, California State University, San Bernardino, CA, USA
- 3 Department of Accounting and Finance, College of Business and Public Administration, California State University, San Bernardino, CA, USA
- 4 School of Economics & Finance, Massey Business School, Palmerston North, New Zealand
Abstract
Market outcomes are contrasted for uninformed investors with and without broker representation to evaluate the information role, and for parties opposing the uninformed (with and without representation) to evaluate the bargaining role. The setting is a sample of 17,000 office building transactions in more than 100 US markets, and the identification strategy for uninformed investors is based on the nonlocal clientele effect. Nonlocal investors buy high and sell low, paying significant premiums in acquisitions and accepting discounted offers in divestitures. Employing a commercial broker is found to have virtually zero impact on this disparity. Moreover, when the opposite party has broker representation, the degree of overpayment by nonlocal buyers is even higher. These findings are at odds with the conventional notion that brokers possess a high degree of specialized market knowledge which can be used to offset informational disadvantages suffered by their clients.
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