Business couldn't be better in the real
estate industry, but that's not stopping some real estate agencies from
raising the standard sales commission from 6% to 7%. That takes a bigger
chunk out of a seller's profit--an additional $1,500 on a $150,000 home, for
example. It's not good news for home buyers, either, because sellers are
free to hike their prices to cover the commission. Some say, �Let buyers
set the market price!�
Along with higher commissions, some
agencies also are charging sellers "administrative fees" of $100 to $500.
What's the bottom line for home sellers? Shop around!
The increases follow a wave of industry
mergers that shrunk the number of real-estate brokerage firms in the U.S.
Consumer advocates are worried that things may get worse with fewer real
estate firms competing against each other, making it easier for the industry
to raise fees, and harder for home sellers to shop around. Big investment
firms and marketing companies are gobbling up agencies with household names,
such as Coldwell Banker and Century 21.
6% has long been an industry standard, and
the rate hikes have been controversial. Fortunately, the commission hikes
are not yet an industry-wide trend. Some consumers are deliberately taking
their business elsewhere. Perhaps that will be enough incentive for
competing firms to stick with 6%. Certain brokerages such as Long & Foster
in the Washington, DC area, a firm with $12 billion in sales in 1998, are
leading the 7% movement.
Coldwell Banker Parnegg Metro in New Mexico
not only raised commissions from 6 to 7% but also added on a "global
marketing fee" of $245. The new fee hikes seem to be more widespread.
Perhaps it's easier to raise prices incrementally by a few hundred dollars
than by a whole percent of the sales price. Additional charges as high as
$500 are appearing on settlement sheets around the country. What's the
justification? Some brokers say that paperwork processing and technology
costs are getting higher. They say they must invest in computer equipment
and software to stay efficient and keep up with the competition. Others just
cite the cost of doing business and of providing high-impact marketing to
The best hope for consumers is that more
firms will keep rates at 6% to undercut the competition. Obviously, every
time a firm charges 7% or adds on higher processing fees, the more it favors
competing firms that charge less. The worst fear for consumers is that more
mergers and acquisitions will consolidate the real estate industry, and
reduce competition to monopolistic proportions. For Sale by Owner, anyone?