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Competition in the Real Estate Brokerage Industry: A Critical Review

Working paper #825
Panle Jia Barwick and Maisy Wong

The past decade has witnessed remarkable technological innovations and a proliferation of new business models in the real estate sector. However, much of the potential of these innovations has yet to be realized, and most real estate brokerage firms command a persistently high price (commission fee) for services rendered that seems to vary little with the associated cost. This paper identifies structural hurdles that have limited competition, including the current commission payment arrangement whereby the seller pays commissions to both the listing agent and the buying agent, high concentration in local markets, the threat of retaliation, and consumer biases. We then describe the negative welfare consequences of high commissions, discuss policy recommendations that could enhance competition in commissions, and conclude with a brief discussion of the implications of recent innovations in this industry.

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