Roughly $30 billion would be slashed from real estate agents’ commissions under proposed Fed model

In the paper, Richmond Federal Reserve Bank senior economist, Borys Grochulski, and vice president of research, Zhu Wang, argue that the U.S.’ model for real estate commissions is “puzzling” and an “anomaly” when compared with other systems abroad. The pair note that home sellers in the UK, Ireland, the Netherlands, Singapore, Sweden, and Norway pay less than 2% in commission to their real estate agents on average, compared to 5.5% in the U.S, according to a 2015 study.  

As for buyers, a large portion in many countries, including Australia, Canada, and Denmark, purchase properties without agent representation, while 87% of homebuyers use an agent in the U.S, according to National Association of Realtors data. That’s a huge percentage of Americans choosing to use buy-side agents considering half of all buyers find their own homes online anyway.

All of these issues with real estate agents’ current compensation model contributes to “elevated home prices, overused agent services, and prolonged home searches,” according to Wang and Grochulski. In order to correct the problem, the economists proposed a new “à la carte” model for buy-side real estate agents that could reduce buyers’ commissions by roughly $30 billion.

“The results suggest that switching to a cost-based commission model…may increase U.S. homebuyers’ welfare…