Although descriptive only, it is conspicuous that all countries with the lowest commission rates around the world share this principle, where commission rates are much lower at 1-2%, despite similar housing prices. See Netherlands, UK, or Scandinavia.

(B)  Sellers could be influenced by the ``regionally typical” commission rate. Often used for reference, this rate refers not to the average but the most common rate. Real estate agents know that the empirical average is lower but communicate inflated values when not incentivized.

Which brings me to the key question: Why do sellers not demand lower rates instead? How could real estate agents perform this price increase if sellers would benefit from demanding lower rates?

The law shifted the statutory incidence of the commissions from buyers to sellers, splitting the commission between both parties. Results: Commissions did not go down but up. Regionally different with 4%-6% before, most agents charge 3% from both after the reform (6% in total).

💥 New Working Paper 💥 How not to Reduce Commissions of Real Estate Agents: Evidence from Germany.

I show that a policy reform in Germany which aimed to reduce commissions of real estate agents backfired. Real estate agents actually increased their rates in response.

So, how could that happen? 🧵👇