Real Estate Commissions and Homebuying

Borys Grochulski and Zhu Wang

No 24-01, Working Paper from Federal Reserve Bank of Richmond

Abstract: We construct a model of home search and buying in the U.S. housing market and evaluate the commission paid to homebuyers' agents. In the model, as in reality, homebuyers enjoy free house showings without having to pay their agents out of pocket. Buyers' agents receive a commission equal to 3% of the house price only after a home is purchased. We show this compensation structure deviates from cost basis and may lead to elevated home prices, overused agent services, and prolonged home searches. Based on the model, we discuss policy interventions that may improve housing search efficiency and social welfare.

Keywords: Search and matching; Housing market; Real estate commission (search for similar items in EconPapers)
JEL-codes: D4 L1 L8 R3 (search for similar items in EconPapers)
Pages: 42
Date: 2024-02-28
New Economics Papers: this item is included in nep-com, nep-dge, nep-mac and nep-ure
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