2023-10-14 14:16:29
You would have to be a real estate agent. They do a lot of business in Germany when they help sell a house. In Germany you now usually pay a commission of just over 7 percent, including taxes.
Before 2020, property buyers often covered the entire cost of the middleman. Then the federal government changed the law. Since then, buyers and sellers have had to pay the same share of the commission. The legislator hoped that generally lower commission rates would prevail. If the seller has to formally pay at least half of the commission, he would have a visible incentive to negotiate a smaller commission.
Hardly anyone negotiates
However, this did not happen, shows an as yet unpublished study that is available exclusively to the FAS. “Where many brokers previously demanded four or five percent from the seller, excluding taxes, they now often demand three percent from both the buyer and the seller,” says study author Julius Stoll from the Hertie School in Berlin.
For his study, he analyzed 500,000 advertisements on immobilienscout24.de. Since the law on the distribution of brokerage costs came into force, consumers have paid an additional around 390 million euros annually to real estate agents.
But why are broker commissions still high in Germany? One assumption economists made was price fixing. However, Stoll counters: “There is actually no market that needs to be as competitive as the real estate agent market. In Germany you basically only need a cell phone and a business license to become a broker. Even in very rural regions, sellers have a large selection of brokers. Explicit price agreements therefore seemed unlikely to him.
Stoll therefore focused on the behavior of the sellers. The commissions have always been freely negotiable, and there are also some brokers who advertise with lower commissions, but: “In order for brokers to compete with each other on prices, sellers would have to prefer brokers with lower prices,” says Stoll. A survey he conducted for his dissertation among more than 1,000 real estate agents showed that 85 percent of real estate sellers did not even negotiate the commission.
A misleading guideline
Stoll found a reason for this passivity towards the price in a German real estate market peculiarity – the “local commission”. This marketing label from the brokers suggests an average local price to potential customers. But the actual average commission is below the so-called local standard, the study found. And the brokers know that too. The study suggests that “real estate agents influence sellers by using the ‘local’ commission as a misleading benchmark.”
Stoll explains another explanation for the fact that very few real estate sellers negotiate the broker’s commission as follows: The sellers might suspect that brokers can achieve a higher sales price. They therefore accept a high commission and do not negotiate at all.
The investigation showed that the broker’s assumption of a higher price is probably wrong: The 500,000 online advertisements that Stoll examined show that houses that are sold directly by private individuals usually have higher prices than advertisements that are sold by were listed by a broker. “It seems to be a misconception that brokers can consistently achieve higher sales prices that compensate for high commissions,” says the study author.
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