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Realtors cry foul
Real-estate brokers feel they are under unjustified attack.
September 21, 2005: 4:23 PM EDT
By Les Christie, CNN/Money staff writer
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NEW YORK (CNN/Money) - These days, it seems like open season on real-estate brokers...and the brokers aren't happy about it.

With more than 1.2 million members of the National Association of Realtors (NAR), that's a lot of frustration.

"I just feel like we're taking it on the chin again," said Robert Ellis, a Coldwell Banker broker in Florida.

Critics of brokers say the industry needs to be more competitive, paving the way for lower commissions than the standard 6 percent most realtors charge.

As real-estate prices have soared, so have commissions, with Americans paying out more than $70 billion last year.

A recent suit brought by the Department of Justice challenges a policy by NAR that governs individual broker's ability to "opt out" of broadly displaying their listings on the Internet.

This summer, the Justice Dept. went after rules in Kentucky and South Dakota that limited brokers' ability to lower their fees. The Justice Dept. won those cases.

For many brokers, the latest "opt-out" suit is much ado about nothing. "I don't know a single agent who will not allow their listings to be shown on other Web sites," said Dan Haynes, who runs a RE/MAX agency in Fenton, Missouri.

Cheryl Ramos, another Missouri broker, said, "Opting out is not to our advantage or the sellers'."

Ellis said he knows of no Florida broker who chooses to opt-out and blames the housing boom for bringing extra attention on the industry. "The real-estate business is so hot that the media is focused on it," he said.

Spokesman Steve Cook of NAR said that the association does not discourage competition. A new study by Penn State professor Steve Sawyer backs that up. "Selling real estate is intensely competitive. Consumers have more information, they demand more services, and they have more agents and business models to choose from than ever before," wrote Sawyer in the report.

Brave new real estate world

Still, it's tough to argue that the industry is as competitive as it could be.

In other businesses, such as travel-booking and stock trading, fees dropped precipitously after the Internet spawned new business models.

Said Bruce Hahn, chairman of the American Homeowners Grassroots Alliance: "Traditional, full-service brokers are trying desperately to hold onto their full commissions in a changing world."

Full-service real-estate brokers do cooperate with each other. Those with buyers connect them to brokers with sellers. They then split the commission.

But buyers' agents sometimes -- it is said -- "boycott" discount-brokers' listings. As one full-service broker in Florida puts it, "Why would I want to sell that property over another that pays me full commission?"

And listing agents might refuse to show the homes they represent to buyers represented by discount brokers.

The net effect is that commission rates have hardly budged. "Why aren't more brokers lowering their rates to capture more of that business?" asks Hahn.

Follow the money

Haynes, however, says full-service brokers are well worth their price. "I see myself as no different from a doctor or attorney -- I have my client's interest at heart," he said.

Where do full-service brokers claim to have an edge. Their list includes: pricing the home right the first time; more extensive marketing; qualifying buyers before contracts are signed; and negotiating prices.

Brokers also say that the public doesn't appreciate that only a fraction of the commission goes into a broker's pocket.

Initially, it's split between the buyer's and the seller's agents. Then it's split again between the agent and the parent agency. Throw in expenses -- administrative and operating costs, licensing, fees, and, especially, advertising and marketing -- and the profits drop.

Remember, too, if a property doesn't sell, the agent gets stuck with the expenses. Clients pay commissions only on completed sales.

Despite the difficulties, brokers have enjoyed a good run lately. The last figures available from NAR show that median gross personal income for all its members, which includes both brokers (median earnings $65,300) and sales agents ($39,300), hit $52,200 in 2002, up 10 percent from two years earlier. Earnings have probably moved up with home prices since then.

The highest-earning brokers were the most experienced; those with 26 years or more in the business had median earnings of nearly $70,900 in 2002. Those with less than five years' experience made almost 25 percent less, about $53,400.

Brokers say they're worth it and complain that discount brokers do less for clients and lack professionalism. "I don't call them discount brokers," says Ellis, "I call them limited-service brokers."

Even so, Ellis says he fully cooperates with them. Brokers who don't, "are not servicing the customer as well as they could," he said.

"The best way to get top dollar is to make as many people aware of the sale as possible," says Ellis. "It's like an auction, the more bidders the better the price."

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For more on this story, click here.

Some sellers are opting to do it themselves. For more, click here.

If you think selling real estate sounds easy, read this.  Top of page

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