Real Estate Commissions and Homebuying (Revised December 2025)

We study home search and buying in the U.S. housing market, focusing on the level and structure of buyer agent commissions. In our model, as in practice, homebuyers receive free house showings while buyer agents earn a 3% commission from the seller. We show that the prevailing commission level and structure deviate from cost basis, generating excessive agent profits and inefficient searches. Adopting a cost-based commission system could raise social welfare by nearly $40 billion annually by improving home search efficiency and reducing rent-seeking by agents. We discuss policy implications of our findings, including for the recent NAR settlement.