Home Sellers Hit by Higher Sales Commissions
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
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. According to industry estimates, the number of residential real
estate firms in the U.S. has dropped from 150,000 in 1990 to only 80,000
6% has long been the 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 their customers.
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?
Sources used to create this article include writer Felicia Paik and The Wall