Real-Estate War Traps Consumers In the Middle
Full-Service Brokers' Tactics To Rebuff Discount Rivals Sometimes Hurt the Customer
JAMES R. HAGERTY
June 17, 2006; Page B1
In the fight between traditional real-estate brokers and their discount rivals, some consumers are getting caught in the crossfire.
With house prices surging in recent years, a number of people are seeking ways to cut commission costs, which are based on a percentage of a home's selling price. More home buyers are turning to discount brokers that offer to rebate a portion of the commission if you are willing to do much of the work in finding a home. And sellers are hiring discounters who, for a flat fee of a few hundred dollars, will include your home in a multiple-listing service, a database on houses for sale used by agents.
About 11% of home sellers last year used "alternative" brokers (ones offering flat fees or other forms of discounting), up from less than 2% in 2002, according to surveys by Real Trends, a publishing and consulting firm.
The competition from discounters has prompted some traditional brokers to use a variety of tactics to fight back, and this can end up hurting consumers. The controversy will get a public airing Monday when the Consumer Federation of America, a nonprofit research and advocacy group, releases a report on "how the real estate brokerage industry functions as a price-setting cartel."
The stakes are high. People selling homes typically pay commissions of 4% to 6% of the price, which is split between brokers representing the buyer and seller. Residential real-estate sales generate more than $60 billion a year in commissions. Full-service brokers say that in exchange for the commissions they provide expertise and an array of services that help consumers navigate the housing market.
For consumers, the clash among brokers underlines a need to be wary. Buyers hoping to get a cash rebate from the commission earned by their agent need to be aware that they might meet resistance from agents representing sellers. They should check whether there are any conditions attached to the rebate offer and make clear when viewing homes that they are represented by an agent. And sellers using flat-fee listing services sometimes find that agents for buyers shun their homes.
Most real-estate agents are ethical, says Albert Hepp, the owner of BuySelf Realty, Bloomington, Minn., who helped create a new national association of brokers that charge home sellers a flat fee for a limited range of services. But some full-service brokers step out of line, putting their interests ahead of consumers, he says, adding: "The best analogy I can use is a high-school classroom when the teacher walks out of the room."
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