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Are Real Estate Commissions Really Going Up?

Dear Ali: I read one headline that said real estate commissions are going up, and one that said they're going down. Which newspaper do I cancel?

A: Both of them, because you can read me on the Internet. (Just kidding all my friends at The New York Times!)

The source of the confusion is a new study by ForSaleByOwner.com, a discount competitor to traditional brokerages, which argues that aggregate commissions paid by homeowners to brokers dropped about 21 percent in 2008. That makes sense, because both home prices and the volume of home sales have slid over the past couple of years, so there's a smaller pie for commissions to be carved from.

However, commission rates themselves have been edging up the past couple of years, according to Real Trends, the data people who track real estate commissions:

  • 2005: 5.02 percent
  • 2008: 5.2 percent
That's not unusual in a slow market -- in a hot market, sellers figure that an agent's job isn't so hard, and negotiate commission rates down. When the going gets tough, though, it's actually easier for an agent to say, "look, I have to do this and this and this for you to sell that durned house."

Now if you're a homeseller, the really big question that should be in your head is, "But how do I pay the lowest commission for the best service possible?" (Unless you're my uncle, and the question in your head is "How do I pay less than the 5.2 percent, and by how much, and I'll let the chips fall where they may about whether I'm getting cheap service?")

The answer is pretty simple: you ask. If you want to go with a lower-commission firm, find out what they do and don't offer for their bargain rates. Some firms, for example, may put your listing out on the Internet but expect you to take out ads in newspapers or show the property yourself.

But more importantly, if you interview three real estate agents and ask them about their marketing plans and their commission structures, and ask each of them for a discount, you'll probably get one. A Consumer Reports survey that came out last year had respondents reporting that if they asked for a discount on real estate commissions, they got one 71 percent of the time.

Now, are you gonna eat that last bite of pie, or can I have it?

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