Posted by the Asbury Park Press on 08/26/07
If you are selling property now in a market bedeviled by huge inventories of homes and a credit crunch, you could do better if you dumped your real-estate agent.
With a wide range of flat-fee and Internet-based services, you may fare well on your own, yet it's still important to know your options.
For years, homeowners relied upon licensed real-estate agents or brokers, who charged from 5 percent to 7 percent commissions. These middlemen included your home in the industry's Multiple Listing Service and did marketing, advertising and negotiating.
What if you listed and sold the property yourself and avoided the commission?National Real Estate Listings without the Commissions!
According to a recent study, people who used a "for sale by owner" Web site, also known as FSBO, got at least as much for their homes as those who went through a conventional broker.
In many cases, considering the Web site only charged a flat fee, the vendors obtained a higher net selling price than through broker contracts.
Researchers Aviv Nevo and Igal Hendel of Northwestern University, and Francois Ortalo-Magne of University of Wisconsin-Madison examined sales conducted from 1998 to December 2004 through the Web site www.FSBOMadison.com.
Shorter time
Although the study only looked at one Internet service, it noted that listing on the MLS — instead of the Web site — "does shorten the time it takes to sell a house."
The study is welcome news for sellers who want to lower their commission costs and boost net sales prices.
Homeowners could use some help when dealing with the real-estate industry these days. As the revolution in do-it-yourself home selling takes on new forms, it isn't having a significant impact in lowering brokerage expenses.
While housing prices have risen over the past five years, when adjusted for inflation, commissions haven't dropped, even with new services and increased efficiencies in real-estate transactions.
"From 1998 to 2005, U.S. housing prices climbed 37 percent in real terms, and, although national average commission rates appear to have fallen from 5.5 percent to 5 percent, average brokerage fees per transaction rose 26 percent in real terms during the same period," according to a U.S. Federal Trade Commission report published in April.
Industry defenses
The mainstream real-estate brokerage industry has fought discounting in a number of ways.
In 10 states, the industry has succeeded in having "anti- rebate" laws enacted that forbid brokers from discounting commissions, according to the FTC.
Agents typically split their fees with cooperating brokers. In anti-rebate states, no commission discount would be allowed, a practice that clearly hurts home sellers.
Another seemingly anti-consumer tactic is a "minimum-service law" in seven states that requires real-estate brokers to provide specific services.
Local real-estate groups were also accused of restricting flat-fee brokers' access to multiple listing services, which has resulted in several suits against industry organizations by the FTC during the past year.
Right service
Echoing the findings of the trade commission, the Consumer Federation of America, a Washington-based public-action group, found in its own report last year that "the desire of traditional brokers to "double dip' — where one broker collects all of the commission — lies behind all of their anti- competitive actions."
Is greed good when you are desperate to sell a property? Or are you better off avoiding a full-service broker altogether? The answer depends on how adept you are at selling your own property.
If you need full service and your broker can deliver a sale based on his referral network, then it may be worth the commission. If not, you have some options.
"Limited Service" or "Flat-Fee" brokers may charge you as much as $595 for listing or advertising your home. But that's all they are obligated to do.
You can often find a cheaper "MLS-only" package that will only add your home in the industry's listing service. You are responsible for advertising, showing and negotiating.
"Flat-Fee Plus" packages often include negotiating and other assistance for an additional $1,500 or more. You can also upgrade to full service at discounted rates with some online brokers.
Legitimate buyer
Keep in mind that if you take the do-it-yourself route, while your net sales proceeds will be higher, you will have to do much more work and it may take longer to close a sale.
The bottom line is finding a legitimate buyer who is willing to pay the highest possible price. If you have a buyer already lined up or live in a high-demand neighborhood, you certainly don't need a full-service broker.
Should you not feel comfortable marketing your home, brokers with advertising and referral resources may be a better bet. They are also helpful in finding financing.
Although commissions are still too high in an era in which securities and mutual-fund commissions have dropped to practically nothing, there's still the guiding hand of economic self interest that influences who is likely to close a deal.
As the FTC study notes, "brokers have certain incentives to "steer' consumers toward those homes that offer the highest cooperating broker commission and away from homes listed by brokers known to charge discounted commission rates."
ON THE WEB: Visit our Web site, www.app.com, and click on this story for a link to a bonus William Pesek column.
John F. Wasik, author of "The Merchant of Power," is a columnist for Bloomberg News.
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