Study: Legal reform increased commissions for German real estate agents instead of lowering them

Has the German reform on the commission fees of real estate agents failed? This notion emerges from a new study at the Hertie School. In his dissertation, author Julius Stoll shows that the reform of the commission fees of real estate agents’ initiated in 2020 increased fees instead of lowering them. Stoll grounds his finding on an evaluation of half a million real estate advertisements. Before the new law was introduced, only real estate buyers usually paid the commission – between 4% and 6% of the purchase price, depending on the region. The new law required that sellers could only pass on half of the commission fees to buyers. Instead of sharing the previous commission, however, many agents increased it - typically from 4% or 5% to 6%. Per property transaction, this equates to an additional €3,000 and €6,000. Therefore, the study sees the reform as a failure. 

"The statistical evaluation of more than 500,000 real estate advertisements clearly shows that the costs for estate agent commissions have increased with the reform. The reform's goal of lowering commissions through more price competition has thus failed. After the introduction of the law, real estate agents charged an overall higher commission rate from the seller and buyer together than before from the buyer alone," says Julius Stoll, PhD researcher at the Hertie School. 

Real estate sellers: 85% do not negotiate the commission rate

The study was also able to show through a survey experiment conducted with real estate agents that 85% of the sellers do not negotiate the amount of the commission. To explain this passivity, the experiment provided two possible explanations. Firstly, estate agents use the rhetorical trick of talking about a 'regionally typical' commission, although this is an inflated reference point. Second, they might believe that brokers achieve a particularly high sales price. In fact, however, the data reveals lower asking prices when an agent is used.

Additional costs since the reform: 390 million euros annually

The study estimates that consumers have been paying around 390 million euros extra to real estate agents annually since the reform. Possible solutions can be found by looking at Germany's neighbours. Countries with low commission costs share the "Bestellerprinzip" (principle of the orderer), where only the property seller pays the commission. In the Netherlands or Great Britain, for example, real estate agents often charge only 1% to 2% of the sales price.

"Only those who have a choice can negotiate commission. Sellers choose the agent and determine the scope of services. By paying real estate agents a commission, the agent works in the interest of the sellers. The Bestellerprinzip seems to be the most coherent and unbureaucratic solution to overcome the passivity of sellers and to prevent will-o'-the-wisps like the 'regionally typical' commission," Stoll concludes.

The study can be found as a discussion paper by research network Berlin School of Economics.