Real Estate Commissions Shrinking

Real estate agents normally command 6-percent commissions of when they sell a house. But discount brokers and the Internet are eroding that cut. Wendy Kaufman reports that agents are returning most of their commissions to buyers to speed sales in areas where the boom is already over.

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STEVE INSKEEP, host:

On Friday's the business report focuses on your money, and today we'll explain why you might be paying less money in real estate commissions.

The standard real estate commission of six percent may soon become a thing of the past. Discount brokers, Internet savvy buyers and sellers, and the cooling real estate market are driving commission fees down.

NPR's Wendy Kaufman reports.

WENDY KAUFMAN reporting:

Perry Niemond(ph) knew that the Seattle area condominium she was selling, with its fabulous water view, would fetch about a million dollars. And that meant paying about $60,000 just in real estate commissions. Half would go to her listing broker, half to the buyer's agent.

Ms. PERRY NIEMOND (Seattle Home Seller): I had figured out just about to the penny what we would save if we could find a flat fee listing service.

KAUFMAN: Niemond did, and saved $29,000 dollars, compared to the standard commission. She paid the traditional three percent to the buyer's agent, but instead of paying her broker $30,000, she's paying less than $4,000.

She says the only thing she didn't get was face-to-face contact with the agent who handled her listing.

Ms. NIEMOND: I got fliers. I got a sign installed, the key box, all kinds of updates to tell me, you know, how many showings they had. I didn't miss anything that I know of, and since we've sold, I'm pretty happy about it.

KAUFMAN: Niemond got her real estate agent through Progressive Home Sellers, a small, six-month-old Seattle company. Progressive works with half a dozen agents who have day jobs at traditional real estate firms but are willing to work with Progressive for a fraction of their usual rate because they don't have to troll for clients. Progressive provides them.

A different approach is being used by a company called Redfin. Company CEO Glenn Kelman says their Internet buying site, launched in February, was the first of its kind in the country. Seattle area buyers can view aerial maps of houses that are for sale, along with information about prior home sales and tax assessments in the neighborhood.

Mr. GLENN KELMAN (CEO of Redfin): And then, if you see a house that you like, you can buy it online with Redfin. You submit the offer, we process it. We talk to the listing agent, figure out what people are looking for on the other side of the deal, and then call you back to work out the final terms of your offer.

KAUFMAN: Buyers using Redfin have to find their own dream house, no Sunday outings with realtors. But in return, buyers get a rebate of two-thirds of the normal commission.

Walter Maloney, a spokesman for the National Association of Realtors, downplays changes underway in the industry. He says discounters are filling a specialized market, and are handling only a small number of sales.

Mr. WALTER MALONEY (National Association of Realtors Spokesman): Keep in mind, most discount brokers are members of the National Association of Realtors, and they're offering a service to a segment of the market for which it's a very good match, somebody that has the time to show their own home, for example.

KAUFMAN: Real estate commissions have always been negotiable, at least theoretically, and in recent years they have fallen below six percent in some places.

Professor Lane Marzala(ph), a real estate expert at the University of San Diego, says knowledgeable and assertive consumers have prodded agents to lower commissions. She suggests that while consumers were happy to have their homes double and triple in value, they weren't happy when real estate agents doubled and tripled their fees.

Professor LANE MARZALLA (University of San Diego): So instead of it being a $5,000 dollar or a $10,000 dollar commission, it's a $20,000 dollar or a $30,000 dollar commission. And people start to ask, why should I have to pay $30,000 for the work that they did two years ago for $10,000 dollars?

KAUFMAN: Those factors combined with the cooling real estate market and hungrier real estate agents will likely mean even more downward pressure on commissions for buying and selling a home.

Wendy Kaufman, NPR News, Seattle.

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