Real Estate Commissions: Some Insights from the Economics of Multi-Sided Platforms

Executive Vice President Dr. Andres Lerner authored an article for Competition Policy International that discusses recent lawsuits and investigations in the real estate industry. Dr. Lerner offers insights from economics literature on multi-sided platforms and applies them to the structure of real estate commissions.

This article was originally published by Competition Policy International here. The views expressed in this paper are the sole responsibility of the authors and cannot be attributed to Compass Lexecon or any other parties.

Summary:

The real estate industry has long been scrutinized by regulatory agencies for various practices. Recent investigations and lawsuits have focused on the structure of real estate commissions in which a home seller pays both the commissions of its own agent and the agent working with the buyer. This article provides some insights from the economics literature on multi-sided platforms and applies those insights to the structure of real estate commissions. Rather than being an “odd quirk” or anticompetitive structure, home sellers paying the commissions of buyer agents is consistent with other multi-sided platforms, in which it is common if not ubiquitous for one side to pays for all or most of the cost of the platform. Home sellers have legitimate incentives to offer commission to an agent that finds a buyer and assists in the successful completion of the transaction. Such offers of compensation to buyer agents are not driven by the “cooperative compensation” rule of the National Association of Realtors.

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