The stubborn 6 percent commission
Discount brokers working for 3% are despised by regular ones working for 6%. Guess who loses? You.
NEW YORK (MONEY Magazine) - Galling as junk fees and inflated title costs may be, they are small potatoes compared with the big money commanded by real estate brokers in the form of sales commissions -- $65 billion last year. And it's over the size of sales commissions that the struggle to unleash competitive forces in the real estate business has been most fiercely waged
The crux of the battle is this: Scores of discount brokerages have opened around the country offering to help sell your home for much less than the 6 percent commission that traditional agents typically charge. Traditional brokers who bring would-be buyers into homes represented by discounters stand to earn a much smaller commission.
Most brokers say they do so anyway: Boycotting certain homes to protect commission structures would violate their profession's obligation to show customers every appropriate home on the market.
No-shows with a discounter
Jeff Miller, for one, doesn't believe them. In June he listed his house with St. Louis Park discounter Home Avenue. Waiting for buyers at yet another empty open house last September, Miller got the sense that he was very much alone. His wife Jo had wanted him to go with a traditional brokerage, but he resisted, figuring, who needs an agent in this crazy market?
But not one bid came in during the time the Millers had their house on the market with a discounter. Though buyers stopped in to see the place, the people who really move a house -- agents, who bring in the most potential buyers -- were largely absent.
Few ever brought buyers, yet each one brought a version of the same story: Dump your discount broker or your house won't get sold.
"One of the brokers told me that my house was the last one on their list to show a prospective buyer," says Miller.
Under pressure from his wife, Miller caved two weeks before Thanksgiving and hired a traditional agent charging a full commission. On a snowy day in November, 28 agents showed up. No sale as of early February, Miller reports, but seven potential buyers have been brought in for a look.
Pressure to use full-price brokers
Stewart and Amy Krummen planned to use a discount broker to sell their three-bedroom Cape Cod on Florida Avenue, but, they say, the owners of the five-bedroom split-level they wanted on Aquila insisted that the Krummens use their full commission broker.
Why? The Krummens say they were told the owners were nervous they'd fail to sell quickly -- and delay the Aquila closing.
In the end, the Krummens acquiesced and paid $17,710 in full commission on their sale. The Aquila house seller declined to comment; the broker says the Krummens' purchase was not contingent on their hiring her.
The Krummens remember it differently. Either way, their house sold within 24 hours. Says Stewart, "We paid a lot of money for something we could have done with a day's work."