Getting a Break on The Sale
Laura Holcombe and her family recently upgraded from a three-bedroom town home in Pleasant Hill, Calif., to a four-bedroom house in nearby San Ramon. Instead of using an agent from a traditional brokerage like Century 21 or RE/MAX, she used ZipRealty, a full-service firm that offers discounted commissions. The town home sold for $21,000 more than the list price of $535,000. And, by paying a 4 percent commission instead of the usual 6 percent, Holcombe saved an estimated $11,000.
With the housing market booming, sellers are increasingly shopping around for ways to cut the amount they pay agents. And there are more options than ever. While the market share for discount brokerages is still just under 2 percent, according to market researcher Real Trends, they are fast gaining momentum.
Some discounters provide full service for a lower commission. Others, like Help-U-Sell, offer tiered levels of services and pricing, while others, including RealEstate.com, refer you to a traditional real-estate agent and offer a gift. Many sites will list your home on the local Multiple Listing Service (MLS) for a fee, but you will have to do the selling.
Power play. For the cut-rate agents, it has been a long and hard-fought battle against an industry resistant to change. The National Association of Realtors, which establishes policy for the industry, is one of the most politically powerful trade groups. But while the NAR keeps legislators happy with generous contributions, the Department of Justice is proving a nettlesome foe. The antitrust division has been investigating whether rules proposed by the NAR in 2003 governing the distribution of MLS listings on the Web would be anti-competitive. The DOJ also sued the Kentucky Real Estate Commission for alleged anticompetitive practices and sent warnings to four other states.
While the median sales price for a home has soared 42 percent since 2001, agent commissions have remained relatively stable, dipping just slightly. That has invited competition from the likes of Foxtons, a discounter that operates in the New York tri-state area. "I think we have developed a model that's scalable and powerful enough that it can change the industry in the U.S.," says Van Davis, CEO of Foxtons North America, who formerly headed Century 21. Foxtons charges 3 percent to sell a house.
And the giants dominating the industry are not ignorant of the powers of the Web. Century 21 and Coldwell Banker allow buyers to search multiple listings online and view virtual tours. But, argues Coldwell Banker CEO Jim Gillespie, "People forget that real estate is not a commodity like a stock or a bond. It's an emotional experience. If you go totally with the Internet, you are going to lose out on that emotion."
But as Holcombe indicates, a five-figure savings goes a long way to make up for the lost experience. And, she adds, "We definitely didn't get a lack of service for a lower commission."
This story appears in the June 6, 2005 print edition of U.S. News & World Report.
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