Consumers Reacting to Realtor Commission Rates

Residential real estate is an industry in which consolidation and time-saving technology have not only not saved consumers any money, but also coincided with steep price increases. It is an industry that has used its political muscle in a number of states to ward off competition from discounters. And at a time when the Internet has wiped out legions of other middlemen in other industries while squeezing the incomes of those who are left, the number of real estate agents has continued to climb along with their income.

Looming large in all this is the Internet, which threatens to break the exclusive hold that local Realtor groups have had on information and information channels vital to buyers and sellers. The Internet has made it easier for buyers and sellers to go through the process without agents. And it has provided an opening for lower-cost brokers offering limited services.

Companies such as Insight Realty, serving the entire Mid-Atlantic region has averaged over 200% growth in the last 2 years with their flat fee MLS Listing services.  While their marketing efforts initially focused on FSBOs (For Sale By Owners), their rapid growth indicates that all homesellers are gaining interest in these services.

Recent forums also indicate growing consumer resentment toward the current rate of real estate commissions.  Of course the term current is relative in this industry as the commission rate has largely remained unchanged over the past 80 years. 

An online exchange on the Washington Post website include the following exchanges:

"Thanks for finally saying what’s needed to be said for a long time. Many in the real estate industry refuse to change, continue to overcharge for services rendered and real alternatives are needed.  I don’t blame them though. If I could bag a $20k+ commission on a listing that sold in less than a week with minimal effort in this active market, I’d try to stave off competition too."

"You’d think, in markets with tight inventory, full service agents would be willing to bargain on commissions. Again, a few are, particularly involving expensive properties, and in those cases you should be able to find a good one willing to go down to 5 percent. But remember, selling agents for one customers are also buying agents for another, so they may not be as desperate as you think. They have a lot at stake in maintaining the traditional price levels and disabusing consumers about the wisdom of bargaining on price. These are conversations they DON’T WANT TO HAVE."

"The real estate industry, at least here in MD, is a self regulated industry that gets huge sums of money for little work. All you need to do is understand that the settlement lawyer, who can be sued if there is a problem in the contract the agent prepared, gets about $400 for his work while the agent on a sale of a $400K home can receive 6% or $24,000. Something is wrong. If I can sell a car myself I should be able to sell a home without paying such huge fees to people who do not even require a college degree to be the experts they claim to be."

As you can see, it appears the traditional real estate industry is in for change.  Let’s hope that the interests of the consumer drive the process and not the protection of an outdated industry.