Real Estate Commissions and Homebuying

42 Pages Posted: 5 Mar 2024

See all articles by Borys Grochulski

Borys Grochulski

Federal Reserve Banks - Federal Reserve Bank of Richmond

Zhu Wang

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: February, 2024

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

JEL Classification: D4, L1, L8, R3

Suggested Citation

Grochulski, Borys and Wang, Zhu, Real Estate Commissions and Homebuying (February, 2024). FRB Richmond Working Paper No. 24-1, Available at SSRN: https://ssrn.com/abstract=4748041

Borys Grochulski (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

HOME PAGE: http://www.richmondfed.org/research/economists/bios/grochulski_bio.cfm

Zhu Wang

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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