Agents' fees start to fall in Howard

A few sellers get to pay commissions below 6%

County's hot market is factor

Buyer's brokers must take rates they didn't negotiate

May 05, 2002|By Robert Nusgart | Robert Nusgart,SUN REAL ESTATE EDITOR

The law of supply and demand is beginning to lower real estate commissions in Howard County and that doesn't sit well with many agents.

Creig Northrop, the No. 1 agent for Long & Foster Real Estate Inc. in Howard County, is miffed that some agents are negotiating 5 percent, or even 4 percent, commissions instead of the traditional 6 percent.

Commissions are typically split evenly between brokers who represent the seller and the buyer. Consequently, when the seller's agent lowers the commission, it is also lowered for the agent of the buyer. And that loss of income doesn't sit well with Northrop.

Northrop notes the vast majority of homes listed in Howard County still carry a 6 percent commission, but concedes a seller's market is prompting more homeowners to push agents to lower their fees. "People know they can [negotiate] now ... or think they can," he said.

Agents for sellers "are not only making decisions for themselves, they are making it for that buyer's agent, which is not fair because the buyer's agent is working three times as hard as they used to work. So what is happening is that they're reducing [the split] to 2.5 percent, 2 percent, 2.75 ... not the normal 3."

To get the listing, "they are not only cutting the one side, they're cutting the other side. ... Basically it's saying, `I'm cutting my commission; I'll cut the other agent's commission, too.' I just get upset that these buyer agents are working harder and harder for free, or at least for less money."

Pat Hiban, a top-producing agent with Re/Max Advantage in Columbia, who on occasion has taken a lower commission, said that rates vary from county to county.

"It definitely is something that changes from county to county, and it's Realtor driven," he said. "The Realtors are pressured by each other not to give in [on commissions]. Whereas in Carroll County, if you co-op out 2.5 [percent], it's no big deal."

He added that in Baltimore and Baltimore County, the traditional commission is 7 percent - 3.5 percent to each broker - and that luxury homes in Baltimore many times have commissions that are based on a sliding scale geared to the selling price.

As for his base in Howard County, Hiban said he is "seeing more 2.5s out there in the marketplace" but doesn't see it as a "prevalent trend."

10% may have lower fee

However, another agent in the county, who asked not to be identified, estimated that 10 percent of the listings now carry a 5 percent commission, up from maybe "2 or 3 percent" of the homes for sale a couple of years ago.

Said Hiban: "You would see the commission structure begin to decrease based on the fact that the houses are selling faster and the perceived value of the Realtor is less. What is keeping them up is the Realtor community ... the pressure among the Realtors - that's the bottom line."

And then he defended his ability to negotiate his commissions because "I'm running my own show."

Federal antitrust laws prevent brokers from discussing commissions with each other because that would be considered price fixing. However, they are allowed to set a percentage rate that is negotiable.

"I've had to take discounted commissions before if the sellers really press me ... ," said Steven James of Re/Max Columbia Realtors. "But that is between the seller and me."

Alvin C. Monshower Jr., legal counsel to the Maryland Association of Realtors, believes the market is dictating commissions.

"It's supply and demand ... ," said Monshower. "Listings are the bread and butter of this industry. And if brokers are forced to consider reduced commissions to get the listing, then by God they are going to do it."

One broker who is known to take less than the traditional 6 percent commission is Jeff Underwood, who owns Uncommon Realty in Howard County.

Because he is his own broker, Underwood acknowledges he has more flexibility to take a lower commission since he doesn't have to share the commission with an agent.

"Even if I lower it to a 4 percent commission, or 5 percent ... I still get that 2.5 percent [split], so I am still making more than that typical agent who is getting that 6 percent commission," Underwood said.

"I've had several transactions this spring where I only got 2 or 2.5 percent because that listing agent took a 4 or 5 percent listing," he added. "I really don't have a problem with that. I'm working harder with buyers because we are putting multiple offers in, but that's the nature of the market right now."

Underwood said most of his business comes from referrals or past clients. In that case, he's more receptive to a reduced commission.

But, he says, "If I have not worked with them in the past, I don't know how easy or how difficult they are going to be to work with, so I will be more reluctant to discount my fee."

The bottom line for Underwood is that as long as he can make at least $150 per hour, he is satisfied.

"I can do whatever I want as long as it falls within the legality of real estate license law," Underwood said.

Flexibility limited

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