Examination of the Effect of Buyer Agency on the Distribution of Closing Costs

This article investigates the effect of agency on the distribution between buyer and seller of cash charges paid at closing. An analysis of covariance (ANCOVA) model is developed to control for the concomitant effects of financing choice and compensating changes in nominal price on buyer's closing costs and seller's closing costs. The findings, based upon Atlanta area data from the 1989-91 period, reveal that brokers operating under an explicit, exclusive-agency contract with the buyer do affect negotiated outcomes. Average buyer's closing costs are found to have been reduced by 31% and average seller's closing costs to have increased by 10% when a buyer's broker was involved in a transaction. This study also examines the buyer's broker effect on upper- and lower-price-bracket homes.