TY - JOUR
T1 - The Economic Functions of Referrals and Referral Fees
AU - Colwell, Peter F.
AU - Kahn, Charles M.
N1 - Funding Information:
This research was begun under support from the National Association of Realtors. The authors thank an anonymous referee, the editor of this volume, and discussants at the Federal Reserve Bank of Cleveland's Regulation in Housing Finance Conference for valuable comments.
PY - 2001
Y1 - 2001
N2 - As the real estate market becomes more complex, the role of middlemen becomes more central to its efficient operation. Middlemen take on informational roles including marketing, screening, and matching. The real costs incurred in many of these roles are not included in the regulatory authorities' calculations of permitted costs, and become, under RESPA, prohibited as referral fees. This discourages development of innovative packages of products. Regulation specifying the standards for disclosure of referral fees can serve a useful purpose. But the model in this article shows that in at least some circumstances customers will prefer to do business in an environment in which middlemen can choose not to reveal information about any particular referral fee they receive.
AB - As the real estate market becomes more complex, the role of middlemen becomes more central to its efficient operation. Middlemen take on informational roles including marketing, screening, and matching. The real costs incurred in many of these roles are not included in the regulatory authorities' calculations of permitted costs, and become, under RESPA, prohibited as referral fees. This discourages development of innovative packages of products. Regulation specifying the standards for disclosure of referral fees can serve a useful purpose. But the model in this article shows that in at least some circumstances customers will prefer to do business in an environment in which middlemen can choose not to reveal information about any particular referral fee they receive.
KW - Bundling settlement services
KW - Real estate sales
KW - Referral fees
UR - http://www.scopus.com/inward/record.url?scp=0035646740&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=0035646740&partnerID=8YFLogxK
U2 - 10.1023/A:1017943818264
DO - 10.1023/A:1017943818264
M3 - Article
AN - SCOPUS:0035646740
SN - 0895-5638
VL - 23
SP - 267
EP - 296
JO - Journal of Real Estate Finance and Economics
JF - Journal of Real Estate Finance and Economics
IS - 3
ER -