Sorting, Franchising and Real Estate Brokerage Firms

• Published in: The journal of real estate finance and economics Vol. 34; no. 2; pp. 189 - 206
• Main Authors: Benjamin, John D, Chinloy, Peter, Winkler, Daniel T
• Format: Journal Article
• Language: English
• Published: Norwell Springer Nature B.V 01.02.2007
• Subjects: Brokerage; Commercial property; Companies; Cost analysis; Costs; Economic rent; Economies of scale; Fast food industry; Fees & charges; Financial management; Franchisees; Franchising; Hypotheses; Hypothesis testing; Market equilibrium; Marketing; Profitability; Profits; Real estate; Real estate agents & brokers; Real estate companies; Real estate market; Regional disparities; Rents; Return on investment; Royalties; Sales; U.S.A; United States > US
• ISSN: 0895-5638; 1573-045X
• DOI: 10.1007/s11146-007-9008-z

Real estate markets remain localized and reflect differences by region. With a large number of brokerage firms and a smaller number of franchisors, a testable hypothesis is whether in equilibrium fees and royalties are equal to the additional return to the franchisee. If fees are set uniformly across the country, economic rents may be earned in specific local markets. Some franchisees may earn excess profits from the franchise arrangement. Empirical results for 1,143 United States residential brokerage firms in 2001 show standardized uniform franchising costs cover any added returns to franchises in the Midwest and South. Excess returns are present for franchisees in the Northeast. The probability of being a franchisee increases with size and scale. [PUBLICATION ABSTRACT]