Philadelphia – As real estate agents and brokers watch their bottom lines find new bottoms in the post-boom world, the very way most of them earn a living – the commission system – is coming under increasing attack from consumer groups.
By law, commissions are negotiable. Whether consumers take advantage of that, or find a willing agent, appears to be the heart of the issue.
In June, the Consumer Federation of America accused the residential real estate industry of functioning “as a cartel that tries to set prices and restrict service options,” in the words of executive director Stephen Brobeck.
The desire of traditional brokers to maintain the 6 percent to 7 percent commission, “and the opportunity for a ‘double-dip’ – one broker collecting the entire commission – lies behind almost all of their anticompetitive actions,” Brobeck said.
“In nearly all areas of the country, traditional brokers have tried to charge commissions of either 6 percent or 7 percent, although many sellers of higher-priced homes have been able to negotiate reductions of 1 percentage point or even more,” he said, quoting survey results.
Surveys show that most consumers believe commissions are too high, and the growth of the for-sale-by-owner segment of the market during the recent boom was an indication of that.
When Michael Lee, a Castro Valley, Calif., real estate broker and consultant, introduced fee-for-service in 1988, his competitors accused him of being a discount broker.
“But I think working for free is the biggest discount,” said Lee, referring to work real estate agents do but don’t get paid for unless a sale goes through. He was able to find 100 services that he performed for clients for which he could charge by unbundling them.
Julie Garton-Good, another advocate of fee-for-service, has found that consumers are willing to pay “for stuff that we give away for free.” One example: comparative market analysis.
Lee said fee-for-service increases the professionalism of the industry. “After all,” he said, “your doctor still charges you if he saves you or not, so why shouldn’t a real estate agent be paid whether or not he sells your house?”
