Real estate commissions are negotiable - to a point

Nation's Housing

April 21, 2002|By KENNETH HARNEY

HOW MUCH do Americans pay their real estate agents when they buy or sell a home? That may sound like a pretty basic question, but it's curiously elusive.

Realty firms generally don't divulge their commission income publicly, and they're loath to discuss commission rates among themselves for fear of triggering antitrust collusion charges.

Even economists at the industry's trade group, the National Association of Realtors, are gun-shy. They don't collect data on commission rates, and they prefer not to talk about it for the record other than to repeat the well-worn mantra: Rates are always negotiable.

Fine. But the fact is that in most parts of the country, there are semi-standard prevailing rates that most full-service realty firms charge. Six percent to 7 percent is the typical range. And agents tend to be reluctant to budge from the prevailing standard.

But a comprehensive new private study reveals that home sellers and buyers are pressing realty agents to keep commissions down, especially in markets where price-appreciation is high and sales are swift. According to previously unpublished data compiled by the industry newsletter, Real Trends, the average commission rate collected on home sale transactions conducted by the country's 500 largest brokerage firms during fiscal 2001 was 5.48 percent.

In some parts of the country, the average was significantly lower. For example, in the mid-Atlantic region - Maryland, Delaware, New Jersey, Pennsylvania and Virginia - the average was 4.94 percent. In California, Oregon, Washington, Hawaii and Alaska, the average was 5.04 percent. In New England, it was 5.88 percent. Everywhere else, it was close to the 5.48 percent national average.

Real Trends publishes an annual listing of the top 500 realty brokerage firms in the United States. As part of the sales volume and income data gathered for the rankings, the newsletter obtains - but does not publish - gross commission figures from each firm. It treats individual firms' commission revenues as ironclad state secrets.

But when a curious columnist asked for industrywide commission data with no identification of specific firms, Real Trends kindly agreed to tap in a few computer keystrokes and produced national and regional averages.

The proprietary commission data breaks down into what Real Trends calls "sides" - the sell-side gross commissions paid to the listing agent, and the buy-side gross commissions paid to the agent representing the purchaser.

A 5 percent commission on the sale of a $200,000 house in the mid-Atlantic states, for instance, would generate $10,000 in total commissions to the agents and brokers involved. Depending on the deal, the split might put $5,000 each into the pockets of the agents on the listing (selling) and buying sides. Or the parties might agree to give $6,000 to one side and $4,000 to the other.

Commission rates per side can vary widely from firm to firm, even within the same region or city. One East Coast-based company specializing in exotic high-end properties that require lavish advertising outlays to reach small numbers of wealthy target purchasers averaged 5.9 percent commissions per side, a gross commission rate of 11.8 percent on average, according to Real Trends.

Individual brokers around the country say commission rates might be a no-no for public discussion, but they are not mysterious. Terry Bishop, an associate broker for Realty Executives in Tucson, Ariz., says that in listing presentations to potential sellers, she generally declines to go below a 6 percent rate quote.

"I put a lot of expense and effort into every sale," she says, including a mandatory pre-sale property inspection that she pays for. Bishop will cut her standard rate when she lists a seller's home and represents the seller in a replacement home purchase. She charges 7 percent to sell lower-cost homes or when a listing has characteristics that make it tougher to sell.

In Houston, the chief executive officer of fast-growing E-Realty, Russell Capper, has a different approach to commissions. E-Realty charges a standard 4.5 percent on its listings, even when it has to pay 3 percent to a buyer's agent.

"So we're often getting by on just 1 1/2 percent and doing quite well with it," Capper said.

How should you approach commissions as a seller or buyer? For starters, you should know the mantra is true: Rates are negotiable. But be realistic. A skilled agent isn't going to sell your house for chicken feed. Top talent brings you a quick sale at the maximum price.

But what if you're in one of those torrid markets in which houses seemingly sell themselves and in which new listings pull in multiple contract offers as soon as they hit the multiple listing service?

Then you've got some leverage. And there's no point in paying more than necessary.

Kenneth R. Harney is a syndicated columnist. Send letters in care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071. Or e-mail him at kenharney@aol.com.

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