The " Bad Deal " Illusion

Why can contracting with an intermediary be perceived as a " bad deal " compared with a direct contract between buyers and sellers? This study shows that information asymmetries in brokerage services lead to forming a judgmental heuristic that is a negative attitude toward commission fees, called " commission inequity. " Using a questionnaire from 3,484 housing buyers and sellers, we show that this heuristic influences the perceived satisfaction of the transaction price which, in turn, influences broker reputation. Moreover, buyers using brokerage services do not report different purchasing prices than buyers via direct transactions (FSBO) but perceive a significantly lower price satisfaction. These results are replicated with sellers who report a higher selling price when using a broker as compared to sellers selling directly. However, they also indicate a significant lower price satisfaction compared with FSBO sellers. Therefore, the commission inequity heuristic is shown to lead to the illusion of a bad deal.