The Disciplining Effect of Concern for Referrals : Evidence from Real Estate Agents

Real estate agents rely on current clients for referrals to generate future business; this paper aims to understand whether concern for referrals disciplines the agent. We compare the results for sellers who move to another area (and are thus less likely to provide referrals) with the results for sellers who remain in the area (and are thus more likely to provide referrals). We find that the moving-away sellers' houses have a higher hazard (sold) rate, sell faster and sell for less. This is robust to controlling for moving-away sellers' greater impatience, reflected in their listing pricing decision. We also provide evidence that the disciplining effect of concern for referrals is stronger for agents who place a greater value on reputation. Lastly, among sellers who are better at evaluating and monitoring agents, we see less of the high sell rate and low sale price effect