1. Home
  2. Studies
  3. International Practice and Economic Effects: The ‘Principal Pays’ Principle in Real Estate Brokerage
Michael Voigtländer IW-Trends No. 1 26. February 2019 International Practice and Economic Effects: The ‘Principal Pays’ Principle in Real Estate Brokerage

The political debate on how to ease the tight housing markets in Germany has seen a proposal to introduce the ‘principal pays’ principle for real estate purchases. This means that, in future, estate agents will only be paid commission by those who engage them, which is usually the seller.

Download PDF
The ‘Principal Pays’ Principle in Real Estate Brokerage
Michael Voigtländer IW-Trends No. 1 26. February 2019

International Practice and Economic Effects: The ‘Principal Pays’ Principle in Real Estate Brokerage

IW-Trends

German Economic Institute (IW) German Economic Institute (IW)

The political debate on how to ease the tight housing markets in Germany has seen a proposal to introduce the ‘principal pays’ principle for real estate purchases. This means that, in future, estate agents will only be paid commission by those who engage them, which is usually the seller.

An international comparison reveals that in countries where only the seller pays the agent, the brokerage fee is significantly lower than in Germany. In the Netherlands, the United Kingdom and Sweden the agent’s commission is often only 2 per cent of the purchase price compared to the usual 6 per cent in Germany. The main reason for this is that, having the opportunity to obtain a number of quotes, the seller has more bargaining power than the buyer. In addition, it is unlikely that the commission will be completely passed on to the buyer via the selling price. One reason for this is that, besides wanting to obtain the best price, brokers also aim to sell their properties as quickly as possible. A second reason is that buyers have alternatives to fall back on, such as renting their home rather than buying it. An empirical analysis of the pricing behaviour of brokers in Cologne suggests that their sales strategy varies according to the market situation. In summary, the ‘principal pays’ principle would achieve the politically desired effect of lowering the financial burden for the buyer. However, examples from other markets show that brokers will continue to play a significant role. Indeed, the proportion of real estate sold by brokers is expected to rise. In addition, the task of advising buyers may gain in importance.

Download PDF
The ‘Principal Pays’ Principle in Real Estate Brokerage
Michael Voigtländer IW-Trends No. 1 26. February 2019

Michael Voigtländer: Das Bestellerprinzip in der Immobilienvermittlung - Internationale Praxis und ökonomische Effekte

IW-Trends

German Economic Institute (IW) German Economic Institute (IW)

More on the topic

Read the article
Options for affordable new construction
Christian Oberst / Michael Voigtländer IW-Report No. 3 7. January 2024

Options for affordable new construction

Due to the mix of higher interest rates and increased construction costs, new residential construction in Germany is in a very difficult situation.

IW

Read the article
Philipp Deschermeier IW-Trends No. 2 14. August 2023

Housing for the Elderly

Many older people share the desire to be able to live independently in the familiar surroundings of their own home for as long as possible. Accidents and illness, however, can soon put an end to such autonomy.

IW

More about this topic

Content element with id 8880 Content element with id 9713