Costs and Pricing of Home Brokerage Services

This paper explores a simple economic search model, and various brokerage cost assumptions, to derive brokerage pricing implications for three dimensions of the home transaction: (1) level of home price, (2) new relative to existing home sales, and (3) co‐op relative to non‐co‐op sales. The model incorporates time‐on‐market (the price‐time tradeoff) as an important element in home brokerage (search) It is argued that relative search cost differences imply that commission rates will be lower (1) on sales of higher‐priced homes, (2) on sales of new relative to existing homes and (3) on non‐co‐op relative to co‐op sales. A main contribution of the paper is the presentation of considerable supporting evidence showing variation in actual home brokerage commission rates according to these three variables.