How come there's so little discount competition in real estate commissions? When you sell your house, all the brokers in your area generally charge the same amount. You typically pay 6 percent to 7 percent of the selling price (in some cities, you're charged less on the percentage of the sale price that exceeds $100,000).
If the real estate industry were truly competitive, some brokers would undercut others to get your business, especially in lean times, when houses are not selling well.
In some areas it's happening. A recent Consumer Federation of America survey of 27 real estate markets found five cities -- Oakland, San Francisco and Long Beach, Calif.; Newark, N.J., and St. Louis -- where brokers usually cut commissions if asked. Brokers in Cincinnati, Cleveland and Houston rarely cut commissions, it found.
In Baltimore, the survey found that commissions, typically 6 percent or 7 percent, were sometimes negotiable.
A new federal court decision may make it a bit easier for discounters to operate. But even where discounting exists, you're still dealing with an industry that inclines toward cooperative prices, not competitive ones, says Stephen Brobeck, executive director of the consumer group.
In most communities, home sales function through what's known as a Multiple Listing Service. That's a highly efficient information network, usually open only to members of local boards of Realtors (a member of the National Association of Realtors).
You give your house to a "listing" agent who will try -- for a few days -- to sell the house alone. If no customer is found immediately, your home will be publicized through the MLS. That gives other agents, called "cooperating" agents, an opportunity to show their customers your house.
The MLS listing tells the other agents what they will earn if they make the sale. If you pay a 6 percent commission, 3 percent typically goes to the cooperating agent and the other 3 percent to the listing agent. Each real estate firm then gets a cut of what its agent earns.
In the interdependent real estate world, the listing agent in one transaction will be the cooperating agent in another, so all have an interest in keeping commissions up. If the payment to the cooperating agent is lower than normal, many Realtors will be less inclined to show your home.
If a Realtor tries to grab more listings by openly discounting commissions, other Realtors might refuse to show the homes he or she lists. In a 1983 study of the industry, the Federal Trade Commission found that discounters were often harassed or boycotted -- and the complaints continue, says Phil Roark, the FTC attorney in the Los Angeles regional office who coordinated the 1983 study.
Until recently, Realtors in all states but California were allowed to keep other real estate agents out of the MLS. But in a decision rendered against an MLS for the Atlanta area, a federal court has just found this practice anti-competitive.
The court's decision affects Multiple Listing Services in Georgia, Florida and Alabama, which may now have to open their books to agents who have chosen not to be Realtors -- including, perhaps, some discounters. The MLS has filed a petition for review by the Supreme Court.
How can you pay less when you sell your house? Some ideas:
* Before listing a house with a broker, ask for a reduced commission. There are many discounters who don't advertise, lest the other brokers make it hard for them to operate. Small firms are more likely to discount than nationwide firms such as Century 21, ERA, Coldwell Banker or Prudential.
* If the broker takes you on for, say, 5 percent, insist that the cooperating agent still get the full 3 percent (or the normal figure in your area). Otherwise, other brokers won't want to show your house.
* Ask to pay only 3 percent if the listing broker sells your home and hence doesn't have to split with a cooperating broker.
* Consider using a "100 percent house" such as REMAX. Agents pay their REMAX broker a monthly fee and keep all the commissions for themselves. So they have more flexibility in striking deals.
* If seller and buyers are several thousand dollars apart, brokers often surrender part of their commissions to make the sale. Ask about this before pitching in the final bit of money yourself.