Finding homes on Web

Homebuyers and sellers put off by lofty commissions are attracted to virtual brokers offering discounts and rebates.

September 25, 2005|By Lorraine Mirabella | Lorraine Mirabella,Sun reporter

When the time was right to buy a house, Garnett Parker turned on the computer in her Port Deposit mobile home. There, she shopped for an agent, viewed properties and narrowed choices. After three months, she had a new house in Aberdeen -- and a rebate from ZipRealty of $949.50.

John Noppinger tried to sell his parents' former house in Towson himself, but the sign on the lawn drew too many unqualified tire kickers. So he turned to ForSaleByOwner.com, sold the home and saved more than $20,000 in commission costs.

Jill Oliver had worked as a real estate agent and broker for several of the big-name real estate brands before striking out on her own and opening a Help-U-Sell Real Estate franchise in Owings Mills, where she charges sellers a flat fee rather than a commission.

"I started seeing that sellers wanted options," she said. "A lot of sellers were not wanting to pay those percentages."

At a time when the Internet has transformed the way Americans shop for everything from books to airline tickets to cars, regulators, consumer advocates and even real estate professionals have come to question long-established industry practices. The debate has escalated in the current hot real estate market, as commissions have soared along with home prices.

The stakes are high for buyers and sellers, most of whom are making their largest-ever single purchase or sale in a market where prices are climbing at double-digit rates.

They're higher still for the $60 billion brokerage industry as it grapples with how to deal with the power of the Internet when it comes to disseminating home sales information from the 800 multiple-listing services around the country.

In the Baltimore area, for instance, the total value of homes sold more than doubled to $10.7 billion last year, from $5 billion in 2000, according to data from Metropolitan Regional Information Systems Inc., a Rockville company that tracks sales through the Multiple Listing Service. And sales through August this year were running 25 percent ahead of last year's pace. That means hundreds of millions of dollars more in real estate commissions.

Discount or fee-based services and rebates can mean savings for sellers, but they represent a minuscule piece of the marketplace, perhaps an estimated 5 percent, consumer advocates say.

An August study by the AEI-Brookings Joint Center for Regulatory Studies concluded that though traditional industry practices may be dated, new models have been hindered by barriers including discrimination against online brokers and prohibitions on customer rebates.

This month, the Justice Department filed an antitrust lawsuit against the real estate industry's main trade association, charging that the National Association of Realtors' proposed rule permitting brokers to limit the display of home sale listings on the Internet was an attempt to protect its traditional commission structure.

In the suit, the government said the new rule restrains competition from Web-based, discount real estate brokers, hurting homebuyers and sellers. Driving the new policy, the lawsuit says, is resistance by traditional brokers to an onslaught of "virtual" brokers who charge less than traditional commissions.

The NAR, which plans to fight the suit, argues that brokers who work for their listings should be able to determine how to market those listings and decide whether or not to help their competitors' business. The Multiple Listing Service, the group argues, is a broker-to-broker business cooperative.

"It's that broker's piece of business," said Laurie Janik, general counsel for the NAR. "Why should someone else be able to use it to their benefit or advantage without the broker's consent?"

But competitors like fast-growing ZipRealty Inc., an Internet-based discount broker with headquarters in Emeryville, Calif., say traditional brokerages are seeking to protect their commission structure.

"The leadership of the NAR is run by local brokers who've moved their way up who are seeing competitive threats come up," said Pat Lashinsky, senior vice president of product strategy for Zip, which typically charges 1 percent less than the going rate in a market to list homes and offers 20 percent of its commission as a rebate to buyers.

Zip can charge less, Lashinsky says, because it has fewer bricks-and-mortar offices and boosts sales volume by leaving much of the home search legwork to clients searching online.

"You shouldn't have to sit in the back of a car and say what are the three houses the agents have picked, you shouldn't be relying on someone else to make a decision on what inventory is available," Lashinsky said.

But agents and brokers who work with the more traditional models say discount brokers' pitches can be misleading. Even if brokers offer deep discounts, the seller is still obligated to pay the cooperating agent, who represents the buyer -- usually at a rate of about half of a nondiscounted commission.

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