May 18, 2005
$60 Billion question: How do consumers uncouple real estate commissions?
Steven Pearlstein of the Washington Post hit the real estate cartel with a one, two punch today writing a hard-hitting column entitled, Realtors Aghast At Notion of Competition, then hosting an hour online discussion where consumers -- 84% of whom feel that real estate agents are overpaid according to a recent CNN/Money poll -- underscored the importance of the DOJ and FTC's "laudable campaign to bring price competition to one of the last outposts of cartel-like behavior."
After more than a decade of advocating industry reforms it's a pleasure to have the press championing the cause and for Pearlstein to respond to my question during his chat:
Boston, MA: Does the negotiate your own fee, "bring your own broker" (BYOB) compensation plan you suggest in the final paragraph of your column require the uncoupling of the traditional two-sided real estate commission? That seems to be the glue that holds the MLS together and commissions artificially high. How do consumers as a group or individual buyers and sellers get there from here?
Steven Pearlstein: Well, that's the $64,000 question (or should I say the $60 billion one, which is what brokerage fees were in the U.S. last year). I think it will require some changes in state and federal laws (such as on whether brokerage fees can be financed), professional codes of conduct and a change of heart at the National Association of Realtors. If there is no change, however, the system will eventually change on its own as Internet brokers gradually increase their market share and lower prevailing commission rates.
Will Pearlstein and others in the press follow-up with more coverage? Will consumer advocacy groups, like the Consumer Federation of America, once again champion commission reform particularly the ability for buyers and sellers to finance fees outside the traditional two-sided commissions? With their support, new groups like the National Association of Real Estate Consultants can move the industry towards a tipping point where "The next major revolution in real estate," as the former chief economist of the National Association of Realtors once predicted, "will be fee-based services replacing the blanket commission pricing that has dominated the industry for so long."
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It really blows my mind that in a market of million dollar properties these folks are trying to rob the real estate agent out of his 5%. I'm sure sellers feel that way because they just lost a bundle they thought was in the bank and to add on a Sellers agent commission on top of their other losses makes them angry and resentful.
Please keep in mind that this dichotomy of Sellers agents and Buyers agent was put into place to protect the CONSUMER.
If you think Buyer agents are overpaid then you have never met a good one. Looking to be rebated the Buyers agent commission is really shooting yourself in the foot.
The example I use is this: In other words buyers seeking rebates are looking at the short term cash while a good Buyers Agent can get the price of the home reduced. If I can get you the home for 500K instead of 530K, you just saved $180 per month for the next 30 years. That comes to $64,000 over the life of the loan. So the $64,000 question is:
"How does that cash rebate look now?"
Posted by: Jeff Persons ABR | Jan 1, 2010 12:13:44 PM
Cheapskates abound on both sides of the table and it seldom works out for them.
They often overprice their house and may try to sell it themselves. Seldom works and meanwhile the market may have declined.
Saving a couple of thousand here may wind up costing many thousands there.
If you want to change the buyer-agent structure, tie the fee to performance. If I save you $100K, give me back 1/4 of it.
With current selling prices now about 93% of asking prices there's an opportunity for creative realignment.
I often negotiate my fee with the buyer, but if they willy-nilly want a discount I just ask what part of my service they want me to leave out.
Posted by: Peter Lake | Dec 9, 2011 2:33:21 PM
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