Measuring the Efficiency of Residential Real Estate Brokerage Firms

Abstract

This article measures overall, allocative, technical, pure technical and scale efficiency levels for a sample of residential real estate brokerage firms using data envelopment analysis, a linear-programming technique. The results suggest that real estate brokerage firms operate inefficiently. Inefficiencies are primarily a function of sub-optimal input allocations and the failure to operate at constant returns to scale rather than from poor input utilization. Regression analysis is employed to determine which firm and/or market characteristics affect efficiency levels. The results show that increasing firm size increases efficiency while choosing to franchise, adding an additional multiple listing service and increasing operating leverage decreases firm performance.