Commissions are too high, report says

October 23, 1994|By Lorraine Mirabella | Lorraine Mirabella,Sun Staff Writer

WASHINGTON -- Contending real estate agents earn too much on sales, a consumers group is suggesting home sellers negotiate lower commissions.

The Consumer Federation of America, in a report released last week, said sellers should lower the commissions by perhaps 1 percentage point below the 6 percent to 7 percent usually charged. Such a move would save the seller of an average Baltimore house about $1,300.

Cuts from going rates are justified because once a listing agent sets a price and places the home on a multiple listing service, "if it is priced well, it will almost sell itself and they don't have much to do," said Stephen Brobeck, executive director of the CFA.

With agents discarding traditional roles to become buyer brokers, dual agents and facilitators, sellers should be able to negotiate lower commissions and buyers should be able to pay less for homes, he said. As agents offer less representation to buyers and sellers, they should charge less, he said.

A reduction of 1 percentage point would save consumers nationwide $4 billion a year, the CFA said.

But Baltimore-area brokers warned that home sellers should be wary of slashing commissions if it means skimping on marketing essentials, which could end up putting properties at a competitive disadvantage and costing sellers more.

Few consumers realize the time and expense of advertising and marketing a property, as well as leading clients through the complex procedures of negotiating contracts and securing financing, said D. R. Grempler, president of Coldwell Banker Grempler Realty Inc., based in Towson.

"It is labor-intensive, and we earn every penny," Mr. Grempler said.

"Salespeople work for listings. Salespeople are not going to work hard to sell a house unless you're willing to pay what they feel they deserve -- the going rate," he said.

In fact, he said, a home that is not selling might sell faster with a higher commission -- giving other agents an incentive to show it to more buyers -- than with a reduced sales price.

At a news conference on Tuesday, Mr. Brobeck also criticized the most common arrangement among buyers, sellers and real estate agents, in which the agent who works with the buyer actually represents the seller.

Mr. Brobeck recommended that buyers insist on a buyer broker -- an agent who works exclusively for the buyer's interest.

Usually, a seller is represented by an agent who lists a property for sale. Another agent, a "co-op" agent or "subagent," brings in a buyer but owes his allegiance to the seller.

The typical 6 percent or 7 percent commission, paid by the seller, is split between the two agents. Each agent keeps about 60 percent of his share of the commission; the rest goes to the agent's real estate company.

This system, known as subagency, takes advantage of buyers, who are not represented in sale negotiations, the CFA report said.

Such criticism has led to the creation of other arrangements, most notably the buyer's broker, who replaces the subagent. There are two major differences: A buyer's broker represents the buyer; and the buyer will often have a contract obligating him to work with the broker. Another arrangement involves a facilitator, who represents neither but helps the transaction proceed.

With these new arrangements, CFA suggests a new set of commission rates. The report suggests:

* 5 percent to 6 percent if the listing agent shares the commission with a co-op agent, the typical arrangement;

* 3 percent to 4 percent if the agent does not share the commission. For example, if the buyer does not have an agent or the listing agent finds the buyer on his own;

* 4 percent to 4.5 percent if the agent does not exclusively represent the seller and shares the commission.

For example, in the case of dual agents, in which the same real estate company, but different agents, represent the buyer and seller.

* 2.5 percent to 3 percent if the agent does not exclusively represent the seller and does not share the commission.

Buyers also could negotiate directly with the seller's broker for a lower commission, which would allow the seller to lower the home price, Mr. Brobeck said.

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