In 2002, economists Natalya Delcoure and Norm Miller conducted the first study to compare international residential brokerage fees, titled International Residential Real Estate Brokerage Fees and Implications for the U.S. Brokerage Industry.
What they found was puzzling. Many similarly industrialized countries charged home sellers a commission ranging from 1 percent to 5 percent, but the United States was an exception at 6 percent. The study found that commission rates in the United States were abnormally high for a country presumed to be one of the most efficient and price competitive in the world. It also suggested that U.S. residential brokerage fees should run closer to 3 percent; if the typical U.S. agent were as productive as those in England, the brokerage fees would be closer to 1.5 percent.
What follows is an update of the study to determine what, if any, impact the Internet had on commissions during the last 13 years.
Thirteen years later and the findings still are puzzling. While the majority of international real estate commission rates declined, the United States continues to be an outlier from other industrialized countries. The United States didn’t even come close to the suggested 3 percent nor match its nearest counterparts in England at 1.5 percent, as noted in 2002.
Overall, Belarus showed the largest commission reduction with an 81 percent decrease from 10.5 percent to 2 percent commission. Former and quasi-communist countries Belarus, China and Russia make up the top three with the largest commission reductions. Only Hong Kong and Japan showed an increase in commission rates, solely due to the introduction of an additional intermediary in the form of buyer’s agency, which drove up the total commission. Both increased 100 percent from 3 percent to 6 percent and from 1 percent to 2 percent commission, respectively. This dramatic increase may shed some light on the high United States’ commission rates, where buyer’s agency is ubiquitous.
Mexico has the highest commissions, remaining unchanged at 7.5 percent. Five countries are tied for the lowest commission at 1.5 percent. Interestingly, 80 percent are in Northern Europe: Ireland, the Netherlands, Sweden and United Kingdom.
Sweden is an anomaly as it also has one of the highest reductions at 70 percent from 5 percent to 1.5 percent. All Northern European countries saw commissions drop 24 percent. In contrast, Southern European commissions remained mostly unchanged.
Asia has the largest range of commission rates due to the doubling of Hong Kong and Japan. Excluding those countries, Asian commissions saw average reductions of 12 percent.
In Latin American and Caribbean countries, 60 percent remained unchanged and two decreased by on average 21 percent.
Real estate transactions in France are unique in that the number of homeowners selling without a real estate agent was 50 percent. However, current research shows that number rose to 66 percent of sellers using a real estate agent, paying 5 percent commissions.
Commission rates in 17 countries fell an average of 34 percent, 12 countries remain unchanged.
Most residential real estate brokerage firms in the United States today charge about approximately 5.5 percent of the sales prices, with the seller paying half to their agent and the other half to the buyer’s agent. It is a common misperception that the services involved in buying a home are free, but, in reality, the buyer is the only party bringing money to the closing table. Globally, most countries do not have buyer’s agents or the buyers pay their agents directly. According to a 2007 National Association of Realtors Survey, only 15 percent of homebuyers in the United States rewarded their own agents directly. And part of that reason may be because more than 90 percent of home shoppers go online to search for homes for sale and the majority of buyers find the home they eventually buy online by themselves. For sellers, academic research shows that high commissions distort agent incentives, leading sellers to lose money due to underpricing, and that agents who sell their own homes do so at higher prices than their clients.
In 2002, the study found that low, non-U.S. residential brokerage fees were highly correlated with market efficiency based upon GDP per capita and resulted in a higher number of sales per full-time agent. High commissions in the United States pointed to inherent collusion, price inflation, dual agency and low barriers to entry for agent licensing.
Since then, hundreds of real estate-related Internet companies formed to help increase efficiencies. As a result, real estate agents and their clients have numerous ways to more efficiently conduct business and therefore reduce costs. But it is concerning that the United States, where most of these companies are based, has not seen a dramatic drop in commissions. Residential real estate commissions in the United States remained high during the last 13 years and do not appear to have been positively affected by penetration of the Internet, nor the introduction of many online tools for buyers and sellers. Elsewhere around the world more than half of the countries saw reduced commissions, some by significant amounts.
Original study author Norm Miller, Professor of Real Estate at the University of San Diego and Surefield advisor, reviewed the updated results stating:
“Obvious parallels in terms of industries which benefitted from online search and comparison abilities were the travel industries and the stock brokerage industry. Today both of those industries are totally transformed, more transparent and with much lower transaction fees. However, the [U.S.] real estate industry has not seen such a transformation.
The real estate industry and consumers would benefit greatly from the elimination of low-value-add, part-time agents and more reliance on knowledgeable agents doing more business transactions, but at lower fees. The industry seems more resistant to change because most buyers and sellers do not use real estate agents very often and accept prices that are mostly based on imitative pricing and cooperation, or silent collusion.
Commissions will change with new transformative brokerages, but we obviously have not yet reached the tipping point where firms find it worthwhile to compete on price versus claims of faster sales or higher prices, neither of which is true.”
Chad Syverson, Professor of Economics at the University of Chicago and Surefield advisor, adds:
“U.S. residential real estate transaction costs are considerably higher than many other countries of the world, especially among those with similar levels of market development. While online and digital technologies have led to large savings in transaction costs for consumers in many markets where real estate agents play an important role, U.S. residential real estate has been a peculiar exception to this. Even though home buyers now play a larger role in finding and comparing potential homes, they have little to show for it in the form of reduced agency costs.”
Table: International Commission Rate Comparisons
|Country||2002 Comments||2015 Comments||2002||2015|
|Argentina||6%, where 3% paid by the buyer, and 3% paid by the seller; does not require buyer broker.||3%-4% paid by the buyer and 1%-2% paid by the seller.||6%||5%|
|Australia||5% on the first $18,000, 2.5% - thereafter; also, properties sold through auction system; advertising provided by real-estate agent.||2% paid by the seller; no buyer's agent.||2.5%||2%|
|Belarus||6%-15% commission, averaging near 10%. Public information is scarce.||1%-3% paid by the seller; buyer pays a fixed amount of $1,500.||10.5%||2%|
|Belgium||3% commission paid by the seller.||3% paid by the seller.||3%||3%|
|Brazil||5% commission, less on a higher priced units.||5% paid by the seller.||5%||5%|
|Canada||3%-6% commission rate. An agent handles, on average, three to five sales per year.||3% paid by the seller; limited regions as high as 5%.||4.5%||3%|
|China||No set regulations and standards for a real-estate transaction in China. Commission fees vary from 5% to 10%. Also, there is a 15% real-estate transfer tax.||0% to 0.5% paid by the seller and the buyer pays 1-3%.||7.5%||2%|
|Denmark||2%-4%. Buyer pays 25% of sale price transfer tax; advertising provided by real-estate agent.||1%-3% paid by the seller.||3%||2%|
|Finland||Fees run to about 5% of the sale price on condos, and 3%-4% on single-family homes. Higher-priced houses have lower commission fees. The government collects a value added tax (22% of the selling price).||2% paid by the seller, up to 3% in some limited regions.||4%||2%|
|France||Only 50% of property sold is listed with a real-estate agent; transactions are kept very private; 50% of the real estate is sold by owner.||66% of sellers use a real-estate agent with commissions ranging from 4%-6% paid by the seller, although buyers will compete to pay these fees when inventory is tight.||N/A||5%|
|Germany||Negotiable rate that ranges from 3%-6%.||3%-6% typically split between the seller and buyer, some markets buyer pays all.||4.5%||4%|
|Greece||4%, with buyer and seller responsible for 2% each. Also, there is a 12% value-added tax on a real-estate transaction.||4% split between the buyer and seller.||4%||4%|
|Hong Kong||Typically 1% brokerage see from the seller. Hong Kong does not require dual representation and one agent may deal with both the buyer and seller. However, both parties typically have separate lawyer representation. In Hong Kong, the maximum transfer tax is 3.75%.||1% paid by the seller and 1% now paid by the buyer.||1%||2%|
|Indonesia||5% paid by either buyer or seller, but not both; a buyer’s broker is required for real-estate transactions.||3%-5% paid by the seller.||5%||4%|
|Ireland||In cities 1.5%-2%, and small towns 2-3%; also properties can be sold through an auction system.||1%-2% paid by the seller.||1.75%||1.5%|
|Israel||4% commission rate equally split between buyer and seller’s agents.||2% paid by the seller, 2% paid by buyer.||4%||4%|
|Italy||Paid by both buyer and seller: each party pays 2%-3%.||2%-3% paid by seller, 2%-3% paid by buyer||5%||5%|
|Jamaica||5% paid by seller.||5% paid by the seller.||5%||5%|
|Japan||3% paid by seller.||3% paid by the seller, 3% paid by the buyer.||3%||6%|
|Malaysia||3% on the first $100,000, and then 2% of the remaining amount of the sale; commission is paid either by buyer or seller, not both.||2%, split between the buyer and seller; sometimes all paid by one side.||2%||2%|
|Mexico||5%-10%. Large emphasis on Multiple Listings Service.||5%-10% paid by the seller depending on region.||7.5%||7.5%|
|Netherlands||1.5%-2%. Broker represents either the buyer or the seller but not both. The seller pays the fees.||1%-2% paid by the seller; buyer's agent infrequent, but if used paid by the buyer.||1.75%||1.5%|
|Norway||2%-3%. Broker represents both parties in the transaction.||1.5%-2% paid by the seller.||2.5%||1.75%|
|Phillipines||5%. Broker represents either the buyer or the seller but not both.||3%-5% commission; buyer or seller pays usually, can be split.||5%||4%|
|Russia||5%-10%, but "net listings" are common; advertising is provided by real-estate broker/agent; For Sale by Owner (FSBO) listings are very common; buyer broker representation is not required. Some commissions are paid in dollars or rubles. Reliable market information is difficult to acquire.||3%-5% paid by the seller; no buyer's agents.||7.5%||4%|
|Singapore||1.5%-2.0%, FSBOs are very rare; buyer broker representation is not required.||1%-2% paid by the seller.||1.75%||1.5%|
|Spain||Commission depends on the property location, averaging 5% of total estate price.||5% paid by the seller.||5%||5%|
|Sweden||5%. Commission paid by seller. 10% commission is typically charged for lower-priced units.||1%-2% paid by the seller.||5%||1.5%|
|Thailand||Commission rates vary from 3%-5%.||3%-5% paid by the seller.||4%||4%|
|Trinidad & Tobago||3%-5% paid by seller.||3%-5% paid by the seller, most commonly 3%.||4%||3%|
|United Kingdom||1%-2% is typical; in very competitive areas 0.5%-0.75%; in low-priced areas as high as 3.5%. Advertising is provided by real-estate broker/agent; buyer broker representation is not required.||1%-2% paid by the seller.||1.5%||1.5%|
|United States||6%-7%. Advertising provided by real-estate broker/agent. In 1999, some real-estate agents charged flat fees that ran from 2%-4%. Auctions are increasing but usually at the same fees or higher than normally charged by the brokerage firm involved.||5%-6% paid by the seller.||6%||5.5%|
Surefield determined international residential real estate commission rates by surveying agents and brokers in major cities within each country using the same method as the 2002 research. The original study evaluated 32 countries.