buyer-agent commissions March 14, 2024 on Chris Howey's blog

There was an Economic Brief paper1 from the Richmond Fed that discussed home buyer agents receiving commissions. The argument put forth is that the current arrangement leads to higher home prices overall and less econimic efficiency. The recommendation is switching to an a la carte approach, where sellers and buyers earch pay their agents directly. Buyers would pay their agents for each task separately, independent of the final price of the home bought.

This would lead to more competition, and remove the incentive for buyer agents to keep home prices high. It would also encourange home buyer agents to show all properties, rather than just houses where their commission-share is higher.

It could possibly lead to greater economic efficiency and higher agent productivity. The U.S. has around 6 times more housing transactions than the U.K. but has 26 times more agents. A cost-based model would save a great amount of talent and resources for other productive use.

  1. Wang, Zhu; and Grochulski, Borys. (March 2024) “Real Estate Commissions and Home Search Efficiency” Federal Reserve Bank of Richmond Economic Brief, No. 24-08. ↩︎

⇒ This article is also available on gemini.