When you sell a house, an office building or any other type of real estate, you usually wind up handing
over 6 percent of the final price to real estate agents. That money is divided between the buying and selling agents. If you’re buying property, you don’t officially have to pay either agent, but that commission will drive up your buying price.
It used to be that the only easy way out of dealing with these fees was to buy and sell through your cousin the real estate agent. But this week, the U.S. Department of Justice informed the National Association of Realtors that they need to change a few of their policies. Specifically, the judgment requires that the NAR offer online real estate brokers the same consideration as other real estate agents.
Up until now, real estate agents listing a house with the various services that help agents connect buyers and sellers could choose to exclude online brokers. They did so because online brokers, such as ZipRealty, have reduced commissions. The DoJ decision found that refusing to work with online brokers prevents consumers from saving money. Essentially, the NAR must give online brokers access to over 800 multiple listing services on the grounds of anti-trust concerns.
There are plenty of ramifications for both buyers and sellers after this decision. Sellers using online brokers may be willing to accept lower prices, as long as they don’t have to put a full 6 percent of the price towards commissions. And since the number of people using the internet to find new homes continues to rise, buyers may find more homes available on their favorite real estate brokerage site. The immediate effects will be limited, I think. There are a few other reasons that houses are staying on the market in most areas and online brokers won’t change that. Overall, however, I think that consumers will get a much better deal on both ends of real estate sales from here on out. They even have a better opportunity to find the perfect piece of real estate, considering that online brokers have innovated new real estate search techniques that the average agent just can’t compete with.
What about real estate agents? I think that there might be some changes in how they do business. Buying agents, especially, might need to consider selling their services for something other than a commission. Xin Lu on Wisebread has a great post that points out the flaws in the commission arrangement, and she has me convinced that changing the compensation scheme might make buying agents offer better service. Real estate agents are looking at a new world. They’ve managed to avoid changing their way of doing business for years, but the DoJ’s ruling has introduced a whole new level of competition into the industry.
May 30th, 2008 at 4:42 pm
The settlement announced by the Justice Department is a definite “win” for consumers, because it helps to ensure that more complete information about current listings are marketed through the Internet.
The title of your piece is “Avoid the 6% Commission,” so your readers should know that the only way to 100% avoid any commission whatsoever is to go “for sale by owner.” And since FSBO listings are about 20% of the marketplace, buyers shouldn’t forget to check our sites like http://www.forsalebyowner.com to see what’s available in their town of choice.