Et Tu, Agent? Commission-Based Steering in Residential Real Estate

Abstract

Real estate agents are required to serve their clients’ best interests. However, policymakers have long suspected that buyer agents steer their clients away from properties that offer low buyer agent commissions. They are particularly concerned that steering is a key reason why agent commissions have remained high in the internet era, even as commissions in other industries have plummeted. Analyzing a new dataset, we provide the first systematic, nationwide evidence that buyer agents do in fact steer clients away from properties that offer low buyer agent commissions.

Buyer agents play an important role in helping their clients find homes. We hypothesize that buyer agents may skip over low-commission homes in favor of high-commission homes when choosing which listings to forward to their clients. If so, low-commission listings would tend to garner fewer page views on public real estate portals like Zillow and Redfin. To test this theory, we track the number of page views that individual listings receive on Redfin. All else being equal, we find that low-commission listings receive fewer page views. This effect is most pronounced for listings with the lowest commissions, but even listings with commissions that are slightly below the going rate receive significantly fewer page views.

We also find evidence that this steering has meaningful economic consequences. Homes with lower buyer agent commissions take longer to sell and are less likely to sell at all. Again, these effects are largest for the listings with the lowest commissions, which take 33% longer to sell nationwide. In a typical geographic market, our best estimate is that these lowest-commission properties face a 75% greater risk of not selling at all. Here too, even commissions that are slightly below the going rate are associated with longer sale times and higher risk of a failed sale.

We explore the implications of our findings with respect to both the $52 trillion U.S. housing market and the ongoing scholarly debates regarding agency costs and Collaborative Industries.

Keywords: residential real estate, real estate agency, agency cost, steering, Collaborative Industries, antitrust, homeownership, principal-agent problem, law and economics

JEL Classification: D12, D22, D43, K11, K21, L13, L14, L41, L85, R31