A reader writes: "How was the 6 percent commission paid by home sellers to real-estate agents established? It seems that with prices continuing to skyrocket..."
Q: How was the 6 percent commission paid by home sellers to real-estate agents established? It seems that with prices continuing to skyrocket, the commission doesn’t really align with anything. For example, when I bought my house three years ago, the seller paid $20,000 in commissions. If I were to sell it now I’d pay about $27,000. Surely the cost of agents doing business hasn’t jumped 35 percent in three years.
A: There’s been an evolution in real-estate commissions over the years, said Dick Fulton, the Northwest Multiple Listing Service 2005 chairman of the board and a broker for Coldwell Banker Bain’s Lake Union office.
In the 1920s, for example, a Washington real-estate association recommended a 5 percent commission to be paid by the seller. Years later, the federal government said that the use of an industry-wide commission schedule amounted to illegal price-fixing.
For the past 25 years or so, commissions have been in the 5 to 7 percent range. In recent years, discount brokerages have cropped up that charge a lesser percentage or a flat fee, usually several hundred dollars.
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“The Department of Justice and the Federal Trade Commission preclude any discussion between real-estate companies on the fees they charge,” Fulton said. “It must be an independent decision.”
In setting their fees, real-estate companies consider “their own business model based on their expenses, profits and what’s in the best interest of their clients and agents,” Fulton said. The level of services also plays a big role in setting commissions.
Discount firms, for example, often don’t advertise homes beyond putting them on the Internet, do not hold open houses, and don’t act as an intermediary in negotiations between buyer and seller. Full-service firms, by contrast, may do all that and hold “brokers open houses” — complete with a buffet lunch — to attract other agents who may have buyers at the ready.
All this means that sellers considering working with a particular agent need to be fully informed about which services they need, which will be provided and which won’t because they can vary widely. And commissions are negotiable.
According to a national real-estate-industry survey Fulton cited, the average increase in expenses for large real-estate companies has gone up 33.5 percent a year from 2000 to 2004.
“The primary contributors to that were rent increases, salary increases for support staff, Web site development and Internet tools,” Fulton said.
By comparison the Everett-Seattle-Tacoma Consumer Price Index rose 9.4 percent between March 2002 and April 2004.
Fulton added one more telling detail: It’s easy to think that agents representing sellers don’t have to do much in the kind of sizzling market we have now, where attractive, well-priced, well-located homes sell almost instantly.
But that’s not true, Fulton said, citing a home on Seattle’s Queen Anne Hill that received 24 offers.
“The expertise involved today in helping a seller navigate through a multiple-offer situation is very demanding,” Fulton said.
Ultimately that home sold for tens of thousands over the asking price.
Q: Can a condo association establish a policy that regulates the number of units that can be rented? If so, what is the legal basis of that policy?
Q: My neighborhood has a homeowners association. About 15 percent of the 77 homes are rentals, and some aren’t well maintained. Can the board vote to limit or ban rentals?
A: Seattle attorney Samuel Jacobs, of the firm Mosler Schermer Walstrom Jacobs & Sieler, says that while these two questions are related, the answers are not the same.
Taking the condo question first, Jacobs says “the condominium form of ownership is created by state law, and that state law allows for a document that forms the condo — the condominium declaration — to impose various limitations and requirements.”
State law allows for amendments to the declaration, so an association in theory could amend its declaration to limit rentals if it so chose, Jacobs said. But what about individual owners’ property rights?
“Put simply, a condo owner does not necessarily have all the rights a single-family homeowner would with respect to the use of their property,” Jacobs said.
Again the reason is state condominium law, which realizes the unique issues involved in congregate ownership.
As for limiting rentals in a single-family neighborhood governed by a homeowners association, Jacobs says the ability to do that depends on what type of powers the governing documents give the association.
“By contrast to the condo context, homeowners in subdivisions have all the power to use their property as they see fit, consistent with applicable law, except with respect to the powers that are given to the association,” Jacobs said. “If the subdivision’s association doesn’t have the power under the subdivision covenants to restrict rentals, then the association would lack the authority to do that.”
What your association likely does have are covenants that require homes and yards to be property maintained. So a potential solution to your renter problem might be to enforce the property-maintenance requirements against the homeowner, Jacobs said.
Home Forum answers readers’ real-estate questions. Send questions to Home Forum, Seattle Times, P.O. Box 1845, Seattle, WA 98111, or call 206-464-8510 to leave a question on a recorded line. The e-mail address is firstname.lastname@example.org. Sorry, no personal replies. More columns at www.seattletimes.com/columnists.