Chipping Away At Realtors' Six Percent

Lesley Stahl Reports How Realtors' Commission Fees Are Under Assault

(CBS)  Editor’s Note: After our broadcast we heard from Stephen Cook, a Vice President of the National Association of Realtors. In his letter he said, "All real estate commissions are negotiable and the average is 5.1 percent, according to the most recent available data." That number came from an industry trade publication, REAL Trends, and was an estimate of average commissions charged by the nation's top 500 brokerages.

A critique of that survey, written by John C. Weicher, Director of the Hudson Institute's Center for Housing and Financial Markets, found REAL Trends' commission data limited by its focus on the largest brokerages and most expensive homes; the most likely situation in which agents charge a lower than 6 percent commission fee.

And, the Government Accountability Office – Congress' investigative arm – reported in a 2005 study that commission rates continued to be about 5 percent to 7 percent of a property's selling price "regardless of local market conditions, housing prices, or the cost or effort required to sell different properties."

Finally, in Cook's letter to us, he wrote, "The National Association of Realtors is a trade association and does not "govern" the real estate industry, and, there is no such thing as a national multiple listing service." In fact, there is no national Multiple Listing Service, instead according to the Justice Department, there are about 1000 multiple listing services, 80 percent controlled by members of the National Association of Realtors and governed by its policies.

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We reported in our story entitled, "6 Percent", that an Internet-based real estate company, ERealty, went "belly up." To be precise, ERealty was purchased by Prudential Real Estate Affiliates, at a loss of about $33 million to ERealty’s investors, according to one of those investors, Steve DelBianco.

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Even with today's housing slump, real estate agents will pull in about $60 billion this year. And the reason is, as any homeowner knows, they charge a six percent commission on the price of every house they sell. So, for instance, a home that goes for a half a million dollars will net agents $30,000 right off the top.

For realtors, the six percent commission is sacrosanct. It's remained in place, even as the price of homes has quadrupled over the past 25 years.

But as correspondent Lesley Stahl reports, things are beginning to change. What happened to travel agents, stock brokers and book sellers – the encroachment of the Internet – is beginning to affect real estate agents. And the sacred six percent is under assault from online discounters.

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Lehrer Willis and his fiancée Bridgette Takeuchi of Seattle, young and Internet savvy, took a big chance when they decided not to hire a traditional real estate agent. Instead, they both sold their old house and bought a new one online.

"What did you have to do yourselves that the traditional real estate agent would have done for you?" Stahl asks.

"Print out the flyers, you know, that would go on our signposts, and describe our house to potential buyers. And then we held an open house ourselves," Willis recalls.

What did they didn't get, says Takeuchi, was having a real estate agent to show the house and actively sell the property.

"Who’s out there, really pushing for us?" Stahl remarks.

"And that’s what I kept saying," Takeuchi acknowledges. "Those insecurities started to really seep in for me and I started to really question. It wasn’t until the ink was dry on the paper that I was a hundred percent sold, to be honest."

Willis says they saved $26,000 by not going through a traditional realtor and paying a commission. "Now we can walk down the aisle. Actually, pay for people to eat at the wedding," Takeuchi adds.

They used a real estate company called Redfin, an online discounter based in Seattle. It has a cadre of e-agents who, for the most part, do their work on computers and on phones. Rob McGarty says early on a number of people called who were skeptical about the whole idea.

"Are there real people there? Is this just some shop in Bangalore! A call center taking real estate transactions? And, you know, after they talked to us [they] realize we were real agents in the same city they were in … they were like: 'Whoa, this is for real!'" McGarty explains.

Willis and Takeuchi's agent, Kelly Engel, used to be a traditional agent. "I had done quite a few deals where I spent maybe five hours total working on the deal. I never saw the house. My client found it online and, you know, I would make $12,000 for four hours of work. And I thought this cannot keep going on like this. Someone, I felt like I was going to get caught! You know, someone’s going to see that this is happening and I think a lot of them hold that truth inside of them right now. They’ve got the clients that are finding houses on their own. They make $20,000 and did 10 hours of work," she says.

Glenn Kelman may look like a bike messenger, but he’s an Internet entrepreneur, the president and CEO of Redfin. "Real estate, by far, is the most screwed up industry in America," he says. "And we feel like things that Amazon or eBay or Yahoo have done of other industries, we can do for the real estate industry."

Because of the Internet, he says, his agents can handle many more transactions and charge the clients much less. "Because they didn’t have to sit in the back of a Lexus with a real estate agent, and use up all of this time, we’re able to pass on a lot of savings to them," he says.

And he does mean "a lot" of savings. Usually, a seller's agent and a buyer's agent split the commission, so they each get three percent. But when Redfin represents the seller, it charges a flat fee of just $3,000, and that’s it. That alone drives the traditional agents crazy. But then, when Redfin represents the buyers, they give them money back.

[KatyTexasRealEstate]

I am a real estate agent in Texas. People who think that finding a buyer, or sticking a sign in a yard is all real estate agents do to earn their fee are ignorant of the entire process. A good real estate agent ensures that the buyer/seller is aware of their responsibilities and rights in order to comply with a contract. Also, there are appraisals, inspections, title issues, repairs, mortgages, insurance issues, local, state and federal ordinances that must be either dealt with or made a non-issue due to regional requirements. Real estate agents get paid for knowledge, just like any other profession. Don't get me wrong; there are some completely STUPID and LAZY real estate agents out there who are not worth a dime just like there are lawyers, teachers and engineers who just don't quite add up.
The reason the discount realty companies got into trouble is because they shun representation responsibilities. Mostly, all they do is put a home into an MLS database then leave the seller out to hang. Talk about getting paid for nothing! Discount companies only advertise for sellers because they get paid for mostly doing nothing but data entry and the more sellers they get, the more they get paid. They could care less if a home sells because they already got paid when they listed it. Sellers think they save money by using these firms but the fact is these discount firms have a lower average sales price on their listings than a full service agent, so do the math.

Real estate agents, while labor is involved, get paid for knowing the market swings and how to successfully coordinate a transaction through the process while keeping their client from getting sued later. Marketing and advertising creates a quicker sale at a higher price if done properly, but once again most agents do not know how to market a home well and/or do not want to spend the money to advertise. Selling a home is not an easy process in today's litigious society. Using the wrong contract form in transaction is enough to cost you thousands of dollars these days.

I offer full service AND discounted service. After people learn of my full service package, they usually pick it over the discount. Now some smarty-pants idiot will probably come along and throw dirt on my entry in one way or another. This is the type of person a buyer or seller has to be protected against if their transaction is not done properly. This type of person always selfishly cries foul when they don't get their way or they just like to argue to cause kaos because that is their life game. Play it safe. ALWAYS interview at least two real estate agents before you buy or sell to see who knows their stuff and be protected against lawsuits and idiots.

[lindaleon]

Hi - I just wanted to comment on all the comments. As a professional home stager, I am always prevented from doing the work that I could do - to get the house sold quickly and easily - either directly by the realtor themselves (realtors don;t want to upset the sellers - or they fear they will lose the listing)...or indirectly - influenced by the commission of the realtor.

I have always felt that realtors would be a great "link" to my getting more clients - but it seems that they are the barrier to my entry!! I know what needs to be done to a home to get it sold (and also when I look online at a listing - I could even tell the realtors exactly what is wrong with the photos - and how to improve the presentation...very easily)...but, time and time again - I get "sidelined" by the realtors.

I wish there was a way for me to tall=k to, to get to the homesellers - and to let them know that they could do x and y to their home (which for some reason the listing agents don't tell them - at least in NY) - and to let them know there are other alternatives to selling their home.

I believe that a service, such as Redfin, will succeed - if the buyer learns to take command of the marketing - and the Internet...and if they utilize the extra money they save on commissions to update their homes in a practical and buyer-focused way.

Linda Leyble
www.beautifulstagedhomes.com

[Redlew1]

I just want to respond to some of these real estate agents and to motivate people to sell there homes on there own. My first home I sold through a real estate agent and from watching what she had done and how much leg work I had done on my own, I came to the conclusion that the house was going to sell itself!
I moved into my second home and after a duration of living there and renovating I decided to sell it on my own and after advertising through signs, flyers and the internet I didn't even make it to an open house and got more than asking price! Once again proper renovations and the ease for someone to move in with out updating made me realise houses sell themselves! I have now sold 3 homes and looking to start selling my 4th in a buyers market with just as much confidence! this home will sell itself.
I have never heard of a real estate agent getting 6% I would never agree to more than 4% which could be 2% for each agent I guess.
My opinion is that there is always some selling and there will always be someone buying only I won't pay someone to unlock my door to show the work I have done on my own!! and really if you put it on the market on your own for a month you can always sign up to an agent later they will never say "NO" to the oppurtunity of stealing your money!!

[cityservice]

Mooven

I am happy to also report that in our first year and a half in business, we have closed over 60 transactions and have SAVED our Clients over $350,000 - either by our 3.49% total listing commission (vs. 6%) or buyer rebate!
While traditional offices hope we "go away" we will continue to grow because we have the industry's most valuable asset on our side - the real estate consumer who is fed up with paying too much for too long.

[nymommy-2009]

neeruam - you got lucky..and it was in a hot market.. try it now in the buyers market.. you won't be so lucky.. oh . I know what you're answer will be..something about our commissions being "too high" in that hot market. guess what..commissions went DOWN.. AND are NOT 6% like this ridiculous story reported. So back to our original complaint that this story is a load of poop the media is shoveling and you're eating up. Bon apetit!

[neeruam-2009]

"neeruam - you don't 'see" the value..cause you have NO IDEA what you're getting into. So.. good luck trying it on your own. Come back and post how long it took you to sell and your final price. you'll see.. it will be twice as long as your local realtors and for alot less money.. oh. and you would have spent money on marketing, not to mention a lot of wasted time showing your home to buyers that weren't even real buyers.. so you'll loose your "sweat equity" and your time plus marketing expenses. in the end, you may not even sell and will be turning to a realtor to do the job for you. I've seen it a million times."
Posted by NYMommy

NYMommy, do you read before you post? Don't taunt me about selling on my own, I said I already did that with my last house. The realtor caravan disparaged my asking price as too high, but I got it & $5K more. We did own ads & marketing & spent $150 on such. We did an open house & sold in 9 days & the most wonderful thing was that buyer had no realtor either, so we paid 0% commission. I paid an attorney $1000 for helping pick the best buyer from multiple offers, he worked with us through the paperwork, the inspection negotiations, & he attended the closing. His fee worked out to .006%, not even 1% and he was terrific, but not greedy. The realtors tried to scare us just like you are, but with education about the process & people like Leslie Stahl, we will never again, despite your taunts, pay a realtor. You don't deserve 6% of my sweat equity.

[nymommy-2009]

neeruam - you don't 'see" the value..cause you have NO IDEA what you're getting into. So.. good luck trying it on your own. Come back and post how long it took you to sell and your final price.. you'll see .. it will be twice as long as your local realtors and for alot less money.. oh.. and you would have spent money on marketing, not to mention a lot of wasted time showing your home to buyers that weren't even real buyers.. so you'll loose your "sweat equity" and your time plus marketing expenses. in the end, you may not even sell and will be turning to a realtor to do the job for you. I've seen it a million times.

[deffector]

If Sellers want to change the sales commission, one logical place to document what is expected in return for the commission is the listing agreement. Article 9 states: %u201CREALTORS., for the protection of all parties, shall assure whenever possible that all agreements related to real estate transactions including listing and representation agreements, purchase contracts, and leases are in writing in clear and understandable language expressing the specific terms, conditions, obligations and commitments of the parties. A copy of each agreement shall be furnished to each party to such agreements upon their signing or initialing.%u201D Are there any Realtors. out there who failed to give a copy of the contract to their clients WHEN they signed it? Did all of your clients happen to read their listing agreement that stated the sales price and commission in clear language? Did it say that the Realtor. was going to put a sign in the yard, put the listing in the MLS, advertise in the newspaper, show the property, et cetera; OR, did it say that the Seller "gives permission%u201D or %u201Cauthorizes%u201D the Realtor. to do all that stuff?

[worldwesteba]

I think the term "sacrosanct" is becoming a bit passe, and overused. Buyers and sellers need to be accountable to themselves for getting informed on issues that affect them in real estate, before entering the marketplace. They should do their homework, and know how they will handle certain situations if they arise. Proactively negotiating fees is the right of the consumer. If consumers are not aware of, and do not exercise, their rights then who can really be faulted for this? As far as calling consumers "incompetent," this is not the view of the entire industry. It is wrong to make such assertions.

[lynne3175]

Well if Kelly Engel spent that little time on a transaction she should get out of the business, because she was not a good agent, there is no way she could have done her job well in the amount of time stated. This is such a joke, we first of all do not in most cases make all that money, we have to give our Brokers there cut, then we have to take out our advertising expenses, etc. this may look like an easy job looking from the outside in, but when done properly, it takes much more time, effort and money to do this job than anyone who dose not do it, or only dose it half way, has any idea. I know I had no idea before I started. We earn every cent of our money, and have nothing to appoligize for.

[objective101]

What a one sided comments from 1.2M NAR members, and I feel so sorry for Leslie Stahl. I am not a real estate agent, but just a normal resident living in LA. I do think real estate is not the most, but one of screwed up industry in America. That could be true some of the real estate agencies are providing their client professional service, but sadly that a lot of them are overcharging their client, and not providing professional service. Since we are the customer, we will pick whatever is more fair to us, and I think redfin will be really successful in the near future, and the traditional real estate broker will be facing out soon. Have you ever thought you will buy airticket, booking hotel, furnitre, fixture or car online?

[sherry2007-2009]

Thank You to all of the REALTORS who have responded to this one sided story. You have all said it WELL. Because of the bias evident in the reporting by Leslie Stahl I would love to be a fly on the wall when she sells or purchases her next piece of Real Estate. I pray she does it all completely via the internet for a discounted price. It would be even more thrilling to watch her do this as a first time homebuyer or seller or a homeowner who is about to go in foreclosure or a property settlement secondary to divorce or death. That would be a blast. I bet she would then beg a REALTOR to represent her at a measley 6% split that is shared with another agent and then shared with the broker and of course all of the other services we pay for to provide such "lousy" service to our clients! Leslie Stahl needs a REALITY check. ~Sherry

[remaxgal]

Hi all, I just want to say to get what you pay for. I am a full service agent and I give full service. I don't have a problem with people using a discount broker because chances are they will not be happy with the outcome and when their listing expires they will come see me. End of story.

[jeanniema]

The only thing that Realtors are guilty of is not being able to articulate what it is that they do for the commission they earn. A person may be able to go to a flat fee e company and save money in the short term but they need to ask what it is that they are really paying for, most if not all of the services offered by these cut rate brokers are services that the client could have taken care of on there own for no fee at all, what are you really getting for your $3000? The other thing that is not covered in this story is the fact that most if not all of these brokerages would not be able to funtion without full service brokers. If we all decided to be flat rate limited service, what would happen to the expertise need to regulate and govern this industry? In the majority of cases a flat rate broker enters into a transaction with a full service broker and relys on them to handle the needs of both clients in the transaction. Who is really earning there commission?

[shar89131]

Hi, I just want to comment that I had an experience with selling a home thru a discount brokerage thinking that I could save on the commission and I was not impressed. My home did not receive any traffic...in fact, I don't think the discount agent even marketed my home at all. After my contract expired, I signed up with a full service agent and I received more traffic in one week compared to the discount broker's non-traffic during the entire 3 months with them!! Plus I feel that I received a more personable relationship with the full service agent vs. the discount agent - I felt that the discount agent did a "List it and Forget it" thing with me, because there was no communication and the lack of activity on my house; while the full service agent kept me informed at least once a week to discuss buyer's feedback as well as marketing strategies to help my home sell faster and for top dollar, she just kept me in the loop. A friend of mine went thru a similar experience trying to sell their home thru a discount realty and ended up hiring a full service agent - their home sold in 17 days!! I think the addage goes true here, "You get what you pay for", especially when it comes to service. I don't think I'll ever hire another discount agent again based on my experience.

[edward283]

"It's remained in place, even as the price of homes has quadrupled over the past 25 years."

The amount charged is based on a percentage,
unlike fixed prices the rate can stay the same
and will be adjusted by inflation.

Note that while 60 Minutes wants to point out
home values have quadrupled over the past 25
years she doesn't mention what her salary has done over the past 25 years nor does she say
how much the cost of an advertisement on her
program has increased over the same period or
any other advertising costs for the matter.

As a matter of fact, I don't think you will
find her mention anything regarding the increased costs faced by agents.

[edward283]

homeownerjoe

While I do agree with stopitnow2 about the
obvious corruption and price fixing in the energy industry.

The NAR does not have a monopoly at all.
The NAR is a trade organization that represents
business members just like your local chamber of
commerce. There a 1000 different independent MLS services that opperate around the country.
These boards are made up of local not just Realtors represented by the NAR but non-realtor
agents as well.

The reason Realtors were upset about discounter
and 60 Minutes was that they have lied to consumers and provided false and misleading statements about our profession. Many of which
have lead people such as yourself to believe
the statements you made. The NAR does not govern the real estate industry, that is done
by the STATE Government, each state has a real
estate commission who enforces the laws passed in each state.

It is sad that people are not familiar enough
to know the differnce between the two and that
a forum such as 60 Minutes was used to promote
such falsehoods.

The NAR does not bar discount brokers but they
it does advocate that they be required to follow the same laws and ethical standards other agents are held to. That would include making false claims and promises to consumers in addition to
making false accusations and claims againts other real estate professionals not just Realtors.

[edward283]

neeruam

I buy your point about sweat equity, but its the
agents doing the work to sell the home, again if
they don't do the job they don't get paid.

I grew up in WV and am familiar with coal miners too, but even more familiar with the concept of those who live in the past and recall what the cost of something used to be rather than what it
is today.

I am sorry inflation hits people in business hard, those expenses often are not tied to
to your appriciation nor your idea of value
but in cold hard cash.

Again, everyone points to what is charged but not what is being paid out.

[neeruam-2009]

"neeruam: What is your problem? Did you wash out of the principals school? Mad you couldn't pass the basic test to get a R/E Liscense. Relax ... go restudy and try it again. Are you a wannabe that couldn't be?"
By ScottyHal May 22

Sorry ScottyHal, none of the above, rather poke myself in the eye than be a 6%-er. I am the child of a coal miner & a dress factory sleeve-setter who busted butt & passed 2 state bar exams. Worked for the IRS defending Commissioner of Internal Revenue for 7 years until my kids came so I know what it is to be in an unpopular profession. Never liked law anyway because it's another often sleazy profession. Now I work from home mainly as a tax preparer/advisor. Occasionally will do a probate case, a will or a real estate closing for which I charge fair undermarket fees & sometimes don't charge at all if client is elderly, ill, etc. Also am a lithographer/etcher so let me know if you're interested in any original prints, my specialty is animals especially Pugs.

When I quit my job to raise the kids, $$ became scarce so we drive older cars, buy gently worn clothes, eat plenty of rice & beans, and do everything else possible to save a buck. THAT'S WHY I GRUDGE AGAINST ANY INDUSTRY THAT TRIES TO TAKE ADVANTAGE OF OUR HARD EARNED INCOME & SWEAT EQUITY AND WHY I WON'T GIVE YOU 6%.

This board will close soon, ScottyHal, so you have only a short time to use what I wrote & put me down again. Then again, this isn't about me, but you asked...

[homeownerjoe]

Hey Realtors, if you have so much "integrity" why do you all criticize and put down discount or online brokers? Are you doing it to protect the public or your 6%? The NAR has a monopoly on Real Estate Services. (Monopoly = Exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices.) 60 minutes has exposed this to the public. That is all going to change soon and you REALTORS are afraid that the easy money will be gone. There are plenty of books out there about how to make money on Real Estate. I am going to write a book on how to make money on "REALTORS"