“The commission sounded like a lot of money lost,” Yershov said. “We weren’t looking to make a huge profit, but we wanted a return on the money we invested doing the renovations. We talked and decided we would not use a real estate agent.”
“But the results were not quite what we expected,” Zolin said.
Counting each dollar
It’s not unusual for homeowners to scrutinize the value that a real estate agent adds when it’s time to sell. The commission, which typically comes out of the seller’s pocket to pay agents on both sides of a deal, is often a touchy issue, especially if attractive offers don’t materialize.
The math can be particularly tricky for people whose home values have eroded. Many have to dig into their savings to pay the sales commission because they do not have enough equity in their homes to cover the cost. Even in the Washington region, one of the few areas where prices are rising, many borrowers are “underwater.” In Maryland, 24 percent of the state’s borrowers owed more on their mortgages than their homes were worth in the first quarter of this year, according to mortgage research firm CoreLogic. In Virginia and the District, 23 percent and 15 percent, respectively, were underwater.
Against that backdrop, real estate commissions must be tumbling, right?
Wrong. As the housing market has soured, the average commission has been climbing, according to Real Trends, an industry publication that polls hundreds of brokerages on the topic and publishes the aggregate number. The average commission jumped from a low of 5.02 percent in 2005 to 5.40 percent last year.
In a nutshell, there are fewer agents working to sell homes — and they’re working much harder than they did during the boom days, when homes practically sold themselves overnight, said Steve Murray, president of Real Trends.
“During the boom, competition among agents drove commission rates down,” Murray said. “Now, agents are putting more time and money into marketing these homes, and they’re not as willing to compete with each other by lowering commissions.”
Locally, commissions also have been climbing, said Jeffrey Detwiler, president and chief operating officer of Long & Foster Cos., the Washington area’s largest real estate brokerage.
“The lowest commission rates were in a marketplace where buyers and sellers were coming together on their own and the agent’s job was to line up orders and show products,” Detwiler said. Today, “it’s about creating confidence that the price is right. There’s never been such a discrepancy between where buyers think they should be buying and where sellers think they should be selling. The Realtor’s job is to bring both sides together.”