[June 28, 2006]

St. Louis Post-Dispatch David Nicklaus column

(St. Louis Post-Dispatch (KRT) Via Thomson Dialog NewsEdge) Jun. 28--REAL ESTATE BROKERS HOLD ON TIGHTLY TO COMMISSIONS: If you want to buy an airline ticket or a few shares of Microsoft, the Internet has cut your transaction costs dramatically. But if you want to buy or sell a house, most real estate agents will expect to be paid about as much as they were earning in the pre-Internet era.

There are exceptions. Chicago-based BuySide Realty launched a service this spring that rebates three-quarters of its commission to home buyers, and Hungry Agents of Webster Groves launched a site last year that lets home sellers set up a bidding war among agents.

Overall, though, the Internet hasn't caused nearly as much disintermediation -- that's a big word for the process of cutting out the middleman -- in real estate as it has in other businesses. Airlines, for the most part, no longer pay travel agents a fee for selling tickets. And investors routinely trade stocks online for $7 or $10 instead of paying hundreds of dollars to a traditional broker. But the average real estate commission was still 5.1 percent in 2004, down from 6.1 percent in 1991.

The Consumer Federation of America thinks that's far too high. In a blistering report issued last week, the Washington-based group accuses real estate brokers of acting as a price-setting cartel to protect their traditional fixed commissions of 6 percent or 7 percent. The report says agents are motivated by the chance to "double dip," collecting the entire commission by purportedly representing both buyer and seller. In this "cockamamie brokerage system," the federation charges, no one gets a fair shake.

The report is especially critical of state laws, such as one enacted by Missouri last year, that require real estate brokers to provide a certain minimum level of service. Traditional brokers have lobbied for such laws as a way to keep discounters out of the business.

Thomas Stevens, president of the National Association of Realtors, says his industry is "one of the most competitive businesses out there. There are really no barriers to entry." He also says that while commissions are coming down, the cost of doing business is going up.

Moreover, according to Stevens, consumers get the chance to decide whether new flat-fee or reduced-fee business models will survive. "There's a place for all business models," he says.

Jim Tullman, chief executive of Hungry Agents, says his new business model is already winning acceptance. He prefers not to be called a discounter, because he says only full-service agents participate in his network. But he agrees that tech-savvy agents can make money while charging less than the traditional 6 or 7 percent.

Tullman said sellers who use Hungry Agents typically get a quote "in the mid to upper 3 percent range" for a house worth $300,000. For a more expensive home, the commission is likely to be even lower.

Tullman says resistance to lower commissions comes from "a vocal minority of dyed-in-the wool agents who don't want to change." They forget, he adds, that "the commission is not theirs to give up. It belongs to the seller."

Stephen Brobeck, president of the Consumer Federation, says those dyed-in-the-wool types still wield a lot of power. He says it's up to consumers to demand lower commissions along with better disclosure about conflicts of interest.

Traditional brokers are already becoming worried, Brobeck says. "It's sort of like they're in Holland when the dikes are starting to spring very serious leaks. Some of them are apoplectic about this."

David Nicklaus: dnicklaus@post-dispatch.com; phone: 314-340-8213

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