Real Estate Commissions and Homebuying (Revised June 2025)

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