New Math On the Old Commission

Sellers Scrutinize the Value Of Regular Brokers' Services

The do-it-yourself approach was "a complete disaster," says Dan Kilcoyne, with his wife, Shira, and daughter, Madeline, at their new home. (By Ricky Carioti -- The Washington Post)

James Keim received plenty of inquiries after he posted a For Sale By Owner sign on the lawn of his Alexandria home this summer.

But they did not come from potential buyers. Instead, they came from real estate agents who wanted him to abandon the do-it-yourself route and sign up with them. Then they came from rival discount agents who told him to ignore those competitors because they could help sell his home at a fraction of the cost.

"It felt like everyone within a 20-mile radius was trying to sell me their services," said Keim, 54, a government contractor. "They weren't even telling me how good they were. They were telling me how bad everybody else was."

Similar scenarios are unfolding all over. Traditional agents who once had a lock on the business of selling and buying homes now face pressure from firms that offer deeply discounted but limited services. The rivalry threatens to shake up the decades-old realty commission system, creating a rift that has prompted state and federal regulators to step into the fray.

The discount business has grown more slowly than many forecasters expected. Once full-service agents started using the Internet as a marketing tool and posting sales listings previously unavailable to the masses, free-market thinkers predicted the agents' role would diminish along with their commissions.

But the Internet has not yet upended the business as it did those of traditional stock brokers and travel agents. Instead, the average real estate commission has dropped only about 1 percentage point since 1991, from 6.1 percent to 5 percent, according to consulting firm Real Trends Inc., which polls hundreds of brokerages on the topic and makes public the aggregate numbers. Rising home prices more than made up for the drop.

Depending on whom you ask, traditional agents keep hanging in there because they play a valuable role in negotiating a complex and pricey transaction unfamiliar to most consumers or because they use heavy-handed tactics to squash competitors -- or a little of both.

However, discounters are making inroads. They have captured about 8 percent of home sellers this year -- down from 11 percent last year, but still a sizeable chunk, said Steve Murray, president of Real Trends. Only four years ago, discounters lured a mere 2 percent of sellers.

At stake are tens of billions of dollars in commissions annually -- $67.5 billion last year alone.

"Many traditional brokers are threatened by the discounters and they should be," Murray said.

The housing boom nurtured the discounters. Buyers snapped up homes just days after they were listed. And sellers balked at paying hefty commissions on houses that were practically selling themselves, said Bruce Hahn, president of the American Homeowners Grassroots Alliance in Arlington.

"Sellers went to the settlement table and said: 'What? I paid $30,000 for an effort that took a few days worth of work?' " Hahn said.