Cutting The Commission

Buyers, sellers are obtaining lower fees thanks to hot market

April 04, 2004|By Nancy Jones-Bonbrest | Nancy Jones-Bonbrest,SPECIAL TO THE SUN

Andy and Shannon Shinskie acknowledge they know more about buying and selling homes than the average consumer.

Both captains in the Marine Corps, the Shinskies have owned four homes. So when they decided to move recently, they chose to sell their Lutherville house by using a discount real estate service to save money on the commission. They estimate a savings of $17,000 but the Shinskies had to handle much of the sale themselves: showing the home, fielding telephone calls, preparing the contract and scheduling a settlement date.

"Home prices are rising so much, and we never challenge the commission," Shannon Shinskie said. "I think too much money is being taken away from the seller and buyer."

Growing competition, rising home values and Internet shopping is paving the way for new real estate companies that are offering a range of services at lower commissions. And in doing so, they are making it well known that commission rates are negotiable. Traditional brokers still dominate the business but when a market is as hot as it is now, agents said more sellers ask about cutting commissions.

The practice has rankled many in a close-knit real estate industry that fiercely champions its role of bringing buyers and sellers together. And industry leaders said consumers should know that many of the lower-cost companies often don't provide the services or expertise that traditional real estate companies offer.

"There's more pressure on commissions now than there ever has been," said Pat Hiban, with Re/Max Advantage Realty in Columbia. But "with discount brokers, there's the probability that they are not going to spend as much attention on you. It's our job as trained negotiators to keep the auction-type atmosphere pumped up. The difference between having two offers on a house and having 10 offers on a house is huge."

Typically, sellers pay 6 percent to 7 percent of a home's sale price to real estate brokers, who split the fee -- half to the agent who represents the buyer and half to the seller's agent.

But real estate trade magazine Real Trends found that although average U.S. commission rates remained unchanged at 5.12 percent in 2002 and last year, the number is down overall from 5.38 percent in 2001.

In Maryland, the rate fell from 5.48 percent in 2002 to 5.46 percent last year -- it was 5.79 in 2001. And in the Mid-Atlantic region, which includes Maryland, the District of Columbia, Virginia, Delaware, Pennsylvania and New Jersey, commissions remained unchanged at 4.78 percent between 2002 and last year but were down from 4.92 percent in 2001.

These numbers come at a time when the market is registering record home sales and more agents than ever are joining the profession. Home prices have enjoyed double-digit increases during each of the past two years, meaning that lower commissions have been easier for companies to dangle since their take in the transaction remains similar.

For example, a $150,000 home sold with an agent under the 6 percent commission in 2002 would cost the seller $9,000. The same home that sold for $175,000 last year with a 5.5 percent commission would cost the consumer $9,625.

The introduction of different business models into the real estate industry is the main reason the average commission has dropped, said Cindy Ariosa, president of the Greater Baltimore Board of Realtors.

"There is no set commission and we are all negotiable," she said. "With that said ... I get a lot of complaints from the public about lack of service. The different businesses that have opened are not providing the same level of service" as traditional real estate brokerage houses.

The Shinskies paid Mr. Lister Realty in Pikesville a one-time fee of $399 to list their property on the Internet database used by Realtors and several online home sale sites. In two days, the couple received six offers for their home and accepted an all-cash offer of $282,000. The price was $4,000 above their asking price, and they didn't pay a commission to a buyer's agent.

But by choosing that route, the Shinskies were responsible for putting in the extra effort to sell their home, including showing it and negotiating the contract. It was something they were willing to do to save the money.

"For the sale of a $300,000 house, that's $18,000 in commission split two ways," Shannon Shinskie said. "I think $9,000 is an exorbitant amount of money."

Most consumers hire professionals to sell their home, and agents said it's likely that route will yield them a higher price. The National Association of Realtors said in a 2003 survey that the national median price of a home sold without an agent was $145,000 compared with $175,000 for an agent-assisted transaction.

Ariosa said consumers should interview two or three real estate agents before choosing one. And she said when opting for the nontraditional route, consumers should remember what they're getting.

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