Readers Weigh In On Real Estate Competitiveness and Commissions

A few months ago we reported on testimony given before a subcommittee of the House Financial Services Committee, largely targeting the National Association of Realtors for what was termed anti-competitive activities. Detractors - and they outnumbered supporters, charged that real estate brokerage is self-regulated with the rules set by brokers themselves and that the industry had acted to restrict use of multiple listing services, unfairly set commission structures, and to undermine less-than-full service real estate agents.

The anti-competition theme was one that Congressman Michael Oxley, Chairman of the parent committee, had been riffing on for some time; requesting a study on NAR practices by the Government Accountability Office (GAO) in 2005, results of which were also presented in testimony at the hearings.

Those testifying in support of the anti-competitive charges included representatives of from government agencies such as the Federal Trade Commission, The Department of Justice, and GAO and industry critics such as discount realty agents and on-line real estate competitors (Redfin and Lending Tree) and, while they were pretty hard on NAR, the Consumer Federation of America was brutal. They had telegraphed their message a week or so earlier with a press release headlined "CFA Congressional Testimony Calls Real Estate Brokerage System Cockamamie."

So much for subtlety.

Shortly after the hearings we reported on those testifying for and against NAR (only NAR and a rep from RE/MAX testified for the defense) although the association was not formally in the dock - and asked for your comments. We also said that we thought the CFA remarks, which went far beyond anything else said in the hearing, were worth a separate discussion. We are now, belatedly, returning today to your comments which were numerous and in the new few days to the remarks made before the committee by CFA.

Reader comments were divided pretty evenly between those supporting NAR and the current system and those complaining about it and those criticizing and justifying the present commission structure. While we had asked respondents to identify themselves as real estate agents, loan managers, consumers, etc., few did, but boy but they did vent. Many comments covered several topics but we have tried to group them by category. Most have been edited for reasons of space, clarity, and spelling.

On Realtor�s professionalism and service:

I'm a consumer reporter whose stories air in 80 cities nationwide. I recently did a series on the NAR, Justice and FTC. Realtors really need to stop insisting their services have value. The issue isn't that you don't provide value: what you have to explain is how sometimes you earn 20 grand for 40 hours of work. Until you can, this issue won't go away. Period.

Real Estate is very hard work. You help your clients and you receive a commission. If your client decides to not buy or sell, you don't get paid and you have expenses to pay too. Would you work for free? Why should I pay for the MLS when consumers get for free? This is like you paying for your car and letting me drive it for free.

Realtors like Loan Officers (good ones) do much, much more work for their commission than the average client, person or crusading government official realizes. So "large" commissions are often earned. But having said that, what is so sacred about "6%"? Let the Market correct all this.
Does anyone really understand the services that a realtor provides?? As a loan officer I also want to see the realtor commission structure protected and do believe that there are "bad apples" in the real estate business. However, I have seen too many homeowners attempt to sell their home themselves, waste time, resources, added stress and then get "screwed" in the end.....It's no wonder that 83-87% of "For Sale By Owners" end up listing their home.

An attorney wrote: Several of my clients have been financially harmed by unethical Capital R - Realtors. Realtors must be required to adhere to professional ethics, NOT to an ethical code established by them (NAR). Self-regulation never works.

If you think Realtors are overpaid then I would like to see some of you work in our profession for a month or two. Try listing a home and getting it sold. See how when you break down the amount of hours you worked that listing; you end up making a very small hourly rate. Nights, weekends, days, holidays ... you're always selling. Need I remind you that commissions are negotiable? In metro NJ/NY we're getting 4% and we're working day and night to move our clients� property.

On competitiveness:

MLS is a monopoly no different than the phone companies used to have and the cost of selling a home is far too high in relation to the value of the service provided. Away with protectionism, MLS must be opened up to innovative new services.

I WANT to use a broker to buy. But in my state I can't get into even a watered down version of the MLS to scan large numbers of properties over a wide area. Instead I'm stuck with Realtor.com which is nearly useless and slow.

In the industry as a whole, the realtor is the only one that is self-regulated and it isn't working. Realtors have been allowed to grossly overstep their boundaries in the finance and title end and their overall knowledge is minimal in these areas. They fear no consequences from their own governing body. In this state, the realtor gives a buyer a printout of properties and the borrower is on his own unless he sees one he likes and the seller pays 6% for that.

The fact about MLS's is that the Realtors maintain a complete inside listing that is only available to fellow Realtors. It is an IP address and you need specific information to enter. The MLS here in Portland Metro is owned by Prudential Real Estate Affiliates. That is monopoly.

The issue of commissions, however, elicited the greatest response:

The flat fee MLS model is exploding because consumers are asking for alternatives to 6%. Add in excise tax and escrow fees and the cost of selling your home can be over 8% with a traditional realtor! The total average commission in Europe is 1.5 to 2%. Somehow the agents over there have figured out how to survive on 1.5%.

I have been selling real estate for over 15 years at what is considered to be a "discount" rate (5%) with complete full service including MLS. My business has evolved nicely. However I still encounter many potential clients who chose to pay 6-7%. They perceive that there is something that the other realtor is doing that I don't. Look around...the choice to pay less has been ignored for years.

95% of Realtors are under qualified (I am being polite) and vastly over paid. I applaud any effort to limit real estate commissions.

People must remember that realtor commission structures were formed when homes were selling for much less... like 100-200K. So, 6-8K in commissions were tolerable considering the cost of advertising, etc.... Today the same home sells for 400-600K. Is 30K+- really a fair price to pay for services provided? MLS is the only thing remaining that props up that commission structure. NAR will defend its use to the death.... but nothing lasts forever.

As a licensed realtor, I understand the services that are provided, and in many cases, these services are overpriced by traditional real estate commission. Price fixing? Depending on the homes value and the amount of marketing, agents should commission themselves accordingly.

RE agents are para-professional attorneys that specialize in RE. If you think RE agents are expensive, please hire an attorney. That's the way is used to be.

Comments were still coming in weeks after our three part series on the hearings appeared. The articles and full range of comments are available here:

Part 3: House Real Estate Hearings - Prosecution Rests And Defense Steps Up
Part 2: NAR Takes A Lickin From Competitors
Part 1: Oxley Hearings Investigate Real Estate Competitiveness

The Changing Real Estate Market

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