As I mentioned previously, it seems as though the pay scale of real estate agents gets more ink than just about any other industry, except perhaps Major League Baseball players, and maybe, prostitutes.

Well, here’s another 77 pages on the subject.

While real estate brokers have long set their fee as a straight percentage of a home’s sale price, this formula is an anomaly and a primary reason why such fees may be inflated by more than $30 billion annually.

Although competitive pressures ordinarily produce a fee structure reflecting costs, real estate broker commissions are strangely unrelated to either the quantity or quality of the service rendered or even to the value provided. Rather, this fee has been based solely on the price of the home. (It is as if tax preparers set their fee as a flat percentage of a client’s gross income, irrespective of how difficult the return was to prepare or how much their efforts saved the taxpayer) …

The article analyzes five elements of the traditional residential real estate broker rate structure, the most important of which are: 1) setting fees as a percentage-of-sale-price, 2) letting the seller’s broker set the fee received by the buyer’s broker, and 3) refusing to unbundle the price of a full package of service …

[This] article suggests that consumers would benefit most from a fee-for-service approach – combining flat fees, hourly fees, and bonuses, including percentages of extra value created – and it identifies currently available examples of some of these options. After reviewing eight reasons why incumbents are able to protect the current structure, the article suggests six new disclosures that might undermine the industry’s protectionist practices.

Complete study: A Critical Assessment of the Standard, Traditional, Residential Real Estate Broker Commission Rate Structure – By Mark S. Nadel, AEI-Brookings Joint Center

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