Is It the End of 6% Real Estate Commissions?
This week the Justice Department reached an antitrust settlement with the National Association of Realtors that is meant to spur competition and bring down the standard 6% commission that comes with each real estate transaction. Basically, the NAR is no longer able to withhold the information on multiple listing services from discount online brokers such as Redfin and ZipRealty. Will consumers like us see a huge deduction in real estate transaction prices soon?
Before I make any predictions, I would like to say that I have always found it odd for a buyer's agent to take commissions on the sale of a house. The reason is that technically a buyer's agent is supposed to negotiate for the best price for the client, but the dangling carrot of the commission probably tempts some of them to hype up the property price as high as possible. Instead of taking a percentage on a sale, I think buyer's agents should just charge for the time they spend showing homes to a client and perhaps get a bonus on the amount they save the client by negotiating for a price below asking. That way, they will be actually paid for their work, and they will have no stake in hyping up prices. For agents with picky clients, it is possible that charging by the hour is more lucrative than charging 3% on a sale.
I think this settlement will definitely promote competition and bring down commissions as more people start to use the internet to search for real estate. It is good for sellers because their listings will get more exposure on many different sites rather than a closed multiple listing service. It is also great for buyers because information will be more freely available and they no longer have to depend on realtors to find real estate of their choice. On the side of the agents, I think excellent selling agents could still make great commissions because discount online realtors have limited services that may not be advantageous to a seller in our current tough market conditions. However, I think buyer's agents really need to cut down their commissions or change their billing model to compete with discount realtors that refund up to 2/3rds of the commission because many more people will be picking out homes online in the near future.
Ultimately, this settlement shows us that knowledge is power, and the internet is a great place to obtain knowledge. The real estate industry can no longer take 6% commissions for granted, but as long as the agents are able to adapt to the situation and keep their customers happy I think they will still thrive in our turbulent economy.