So you think that things don’t get rough in real estate and that feathers don’t fly when agents’ commission money is at stake? Ha. Listen to what Joshua Hunt, founder and CEO of discount-fee realty brokerage Trelora recently said at a meeting of the Federal Trade Commission and Justice Department.
Trelora, which is based in Denver, charges home sellers a flat $2,500 to list their home and allows them to pay agents another $2,500 for bringing in buyers, no matter the price of the house. Hunt told the meeting, which was organized to examine the state of competition in the real estate market, that competing brokers and agents loathe his firm’s business model because it reduces the total commissions they receive.
“We’ve had bricks thrown through car windows,” he said, “we’ve had our cars egged, we’ve had hate mail sent to our sellers” — all because Trelora clients don’t pay enough in commission dollars, which are split between the listing agent and the buyer’s agent.
Many competitors won’t even show Trelora-listed homes, Hunt said. “I’ve got a list here of 719 brokerages in Denver” that will not show Trelora properties unless the seller agrees to pay the buyer’s agent 2.8 percent to 3 percent of the sale price as commission. On a $500,000 house, that’s a big difference: $2,500 vs. $14,000 or $15,000.
Hunt has also fought pitched battles with local Multiple Listing Service units, insisting that they allow consumers — not just agents — to see the full commission splits on listings. That means disclosing the buyer’s agent’s cut of the pie — which many buyers don’t know and don’t ask about — as well as the listing agent’s.
Buyers often “have no clue where the money is coming from” in the transaction, which ultimately is out of their own pocket via the price they pay the seller for the house, according to Hunt. In addition, “sellers are told that it’s illegal to offer less than 3 percent” as the fee for the buyer’s agent, and he “has dozens of emails logged” saying “it’s required.”
Hunt’s aggressive advocacy of lower and more transparent commission rates raises key questions for anyone considering selling or buying today: What is the “typical” commission rate on a home sale? Is it all negotiable? And do you know how commissions get divvied up?
Steve Murray, president of Real Trends, which tracks brokerage commissions and is widely considered the authority on the subject, says actual rates are not necessarily what consumers assume. Last year, he told me, the average home-sale commission rate across the country was 5.08 percent. That’s down from 6.1 percent in 1991 and 5.42 percent in 2010. The average rate hasn’t been north of 6 percent for nearly three decades.
On negotiating, the reality is this: All commission rates are negotiable. It’s never “illegal” to offer a discounted fee. There is no “standard” rate, though some highly experienced, full-service agents may not be willing to — or need to — accept a discounted commission.
At the FTC-Justice meeting, a senior executive from national realty firm ERA described one of the company’s top-producing agents, who charges all clients 7 percent to list and sell a home. When owners inevitably ask how she can charge that much when competing agents quote less, she answers: “They should.” In other words, she believes they don’t bring as much oomph to the table: She sells houses faster and at higher contract prices than competitors. Besides, she’s free to charge whatever she wants. Take it or leave it.
How much of the 7 percent she keeps for herself is up to her, but most likely she values the services of top local buyers’ agents enough to pay them a generous fee. Splits between listing and buyer’s agents are also fully negotiable, though, as Hunt pointed out, that gets handled in a separate, typically undisclosed agreement between the agents involved.
Another reality on commission rates: You’ve got an unprecedented array of fee and service-level options available today. If you want to do most of the heavy lifting in the marketing of your home — showing it, holding it open, writing contracts — you can go online and find a mind-bending menu of companies that will do the rest of the work at far less than what you’d pay a traditional full-service agent. If you choose to pay a flat or deeply discounted fee, no problem, there are lots of competitors.
Bottom line: Bone up on your options. And your negotiating skills. Paying the right amount of commission ultimately is up to you.
Ken Harney’s email address is email@example.com.