Home sellers and buyers largely don’t know how real-estate commissions work, and brokers aren’t in a hurry to help them learn.
That can drive up the cost of buying and selling a home by artificially inflating commission fees, according to a report published Monday by the Consumer Federation of America (CFA), a consumer-advocacy think tank.
Washington consumers, though, are at an advantage, the report noted.
When it comes to buying a house, many people living in the northwest half of Washington — 23 counties from Clark to Whatcom, including King, Pierce and Snohomish counties — have access to more information about brokers’ commissions than nearly anywhere else in the country.
Western Washington brokers were among the first in the country to publish the commissions offered to buyers’ agents on their websites, thanks to an Oct. 1 rule change from the Northwest Multiple Listing Service (NWMLS), a local property listing clearinghouse.
Scan the home listings today on Windermere’s or Coldwell Banker Bain’s websites, and you’ll find the rate for the “selling office commission,” or “buyer’s agent commission,” the proportion of the closing price paid to the agent representing the ultimate buyer of the house. It’s usually between 2.5% and 3%.
Historically, brokers have closely guarded the commissions advertised to buyers’ agents, generating allegations of price-fixing: Two ongoing class-action lawsuits claim that brokers steer buyers away from homes offering low buyer’s agent commissions.
And in May, the Department of Justice requested information from the leading purveyor of listing databases, CoreLogic, on nationwide property commissions and sales. The data will help the department decide whether to file an antitrust suit against brokerages.
“It’s not as if you can never, ever get information on prices,” report author Stephen Brobeck, a senior fellow at CFA, said in an interview. “But the reality is that when the agents never bring it up, it never gets brought up, in many cases, until the closing.”
The CFA asked 200 brokers around the country what they charged to sell a house. Almost all named their fee — generally, 6% of the closing price.
But, Brobeck said, that information didn’t always come easily.
Brokers evaded answering how much they charged by describing the services they offered, he said. He had to keep pressing to get them to share their fees. And only 27% said their commissions were negotiable.
The National Association of Realtors, the country’s largest industry group for real-estate brokers, says that all commissions should be negotiable. The NWMLS declined to comment on the new report.
Savvy consumers are generally aware they need to keep asking to find out about commissions, and that they can negotiate commissions down.
“Buying a home isn’t something you do very often. It’s not like buying shoes, where you know the price point,” said Redfin chief economist Daryl Fairweather. “When buyers or sellers don’t know how much is normal, they don’t have much room to negotiate commission.”
And generally, brokerages don’t go to great lengths to educate consumers, the CFA report found.
Brobeck examined the websites of 263 brokerages across four cities. Only 11 had information on commissions.
“If you’re looking for a savings account, there’s extensive online information about costs and interest,” Brobeck said at a news conference. “Here in the real-estate brokerage industry, you can’t even find any mention in the large majority of websites of consumer costs.”
Transparent in Seattle
Unless, that is, you live around here. Around Seattle, many large brokerages, including Coldwell Banker Bain, Windermere and Redfin, publish buyer’s agent commissions on their websites.
Still, within the expansive boundaries of the NWMLS, not all brokers have chosen to publish what they offer buyers’ agents — in part because they don’t want their revenues to take a hit.
“There’s a big downside,” said Seattle broker Kim Mulligan, of Engel & Völkers. “A lot of people don’t know how much work real-estate agents put into a sale. Our job is to make it look easy for our clients.”
And for listing agents, it doesn’t make much sense to put a blanket price on assets, like homes, that may be very different from one another, said James Young, the director of the University of Washington’s Center for Real Estate Research.
“You can’t just call an agent and say, here’s a $400,000 house, how much would it cost to sell?” he said. “That $400,000 house, where is it? What kind of due diligence is there? What’s the probability the house is going to sell?”
Those are questions sellers should be prepared to talk about with their agents — before they list their house, Brobeck said.
“It’s very difficult to negotiate commission when you get to closing,” he said.