Social Networks and the Success of Market Intermediaries: Evidence from the US Residential Real Estate Industry

Abstract:

We examine the roles of market intermediaries in brokering connections among otherwise disconnected social networks. Market intermediaries are usually thought of as simply bringing together buyers and sellers with whom they have weak ties. However, intermediaries may also connect principals with other professionals who can provide assistance with the transaction. Because they are involved in repeated transactions, market intermediaries generally have strong ties with such professionals. We address the question of which set of relations—weak ties to buyers and sellers or strong ties to other professionals—are more important to the success of market intermediaries, using data from the US residential real estate industry—a setting in which transactions are complex and market intermediaries are common. From a national survey of 525 realtors, we find that strong tie relations are more important than weak ties as predictor of the market intermediary’s income, counter to the general wisdom about real estate in particular and market intermediaries more generally. This finding suggests that market intermediaries may become more successful by developing strong relations with other related professionals. The strong-tie arrangements among professional market intermediaries may behave like ‘quasi-firms’ that help buyers and sellers navigate complex market transactions.