$30 billion savings from ‘a la carte’ commissions? 

New research from the Fed concludes that homebuyers would benefit from an overhaul to the way agents get paid — to the tune of more than $30 billion a year.

Specifically, the Richmond Federal Reserve proposed an "a la carte" system in which homebuyers hire their own agents and pay them separately for each task completed — independent of the final price of the home.

"This would allow buyers to shop for each service they need and bargain for the price," according to the working paper, written by Richmond Fed Senior Economist Borys Grochulski and VP of Research Zhu Wang.

Their research took a 3% seller commission as a given, arriving at the $30 billion figure by determining that most of the financial benefit to consumers would come from the redistribution of buyer agents' profits.

The paper comes at a pivotal time for the industry as it grapples with buyer commission lawsuits and the Department of Justice separately proposing big changes to the current system of compensation.

The Federal Reserve authors seemed to have allegations from commission lawsuits in mind as well, noting that "under this a la carte model, sellers and buyers should each pay their agents directly, which would mitigate the threat of steering" — something which allows buyer agents to "command commission above cost," the researchers state.

An agent's perspective: This would hurt buyers

Moving to a cost-based system would be a terrible idea, particularly for first-time homebuyers, said Melissa Savenko, an agent with Long & Foster Innsbrook in Glen Allen, Virginia.

She wondered how a first-time buyer would even go about negotiating a la carte services like advising, showings and writing an offer when they have no idea what they'll need or which services will be required to buy a house.

"Can we PLEASE acknowledge that buying a home is not like buying an airline ticket?" Savenko asked in an email.

In their research paper, Grochulski and Wang constructed a model using economic formulas on home searches and buying a home. They conclude that a buyer agent commission of about 3% and free house showings leads to "elevated home prices, overused agent services and prolonged home searches."

But Savenko disputes the idea that homebuyers will become less "picky" — a phrase used in the research paper — if the system is changed to hourly rates or paying per showing. In a low-inventory environment with multiple bidders, buyers who don't have the extra cash to pay for agent services will simply lose out.

Efficiency, or a system of 'haves' and 'have nots'?

The researchers note that the commissions system in the U.S. has driven "excessive entry of agents and brokerage firms, which causes misallocation of talent and resources." 

For example, compared to the United Kingdom, where commission fees are much lower, the U.S. has six times more housing transactions but 26 times more agents. That's made productivity significantly lower in the U.S., according to the paper.

Savenko's suspicion, however, is that this proposed system "will fragment into a system of the 'haves' and the 'have nots.'" The "haves" will continue to pay for full service from agents while the "have nots" will get less professional guidance and be less protected.

The report also suggests that using the current commission percentage system but capping it at a lower percentage would have a bad side effect: Buyer agents would find it unprofitable to serve low-value houses. For that cap system to work, a minimum commission level would be needed for homes at lower price points.

"We argue that the a la carte model we propose would be a better choice because it does not require policymakers to directly control commission fee levels and also addresses the externality issue caused by free house showings," the report states.