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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.

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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

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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.

 

 

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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

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Pekka Sagner / Michael Voigtländer IW-Trends No. 3 20. August 2021

How the Berlin Rent Cap Affected Private Landlords

The effects of the Berlin rent cap on the city’s housing market were wide-reaching, with the supply of rental accommodation falling by more than half while the cap was in force.

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Pekka Sagner / Maximilian Stockhausen / Michael Voigtländer IW-Analyse No. 136 21. July 2020

Housing – the new social question?

The sharp rise in rents and housing prices in the 2010s, particularly in the major conurbations, has led some to assert that housing is “the social question of our time”.

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