Consumers who are surprised that real estate brokers earn 5% to 6% commission on property sales have a good reason for being so. In its new report, “Hidden Real Estate Commissions: Consumer Costs and Improved Transparency,” the Consumer Federation of America (CFA) found that agents and brokers make it difficult for consumers to learn commission levels.
“The reluctance of traditional real estate agents and firms to provide information about commission levels helps explain why there is so little price competition in the industry,” noted Stephen Brobeck, a CFA senior fellow. “It also helps explain why most consumers, even recent home buyers and sellers, do not know that nearly all commissions range between 5% and 6%
The CFA is a national organization of more than 250 nonprofit consumer groups that was founded in 1968 to advance the consumer interest through research, advocacy, and education. The report was based on a study of 263 agent and broker websites in four cities, conversations with 200 agents in 20 cities and a national survey of more than 2,000 representative consumers. It found that unlike other industries, traditional real estate firms and agents do not publish information about commissions on their websites and usually do not provide full information during phone calls, at least at first. Moreover, the industry restricts the ability of buyers to learn what portion of the commission (“splits”) their buyer agents receive.
In a national on-line survey of 2,000 adults undertaken by Engine Group (formerly ORC International) for CFA, only 32% percent of respondents, and 44% of recent home buyers and sellers, knew that a typical commission is 5% or 6%.
The conversations with listing agents also revealed that only 27% percent said they would be willing to negotiate their rates. Those agents charging the highest rates in an area were most likely to be willing to negotiate, and vice versa. A typical response of the industry to inquiries about commission levels is that “they are negotiable.”
“The industry is beginning to feel more pressure from litigators and regulators to increase price competition,” noted CFA’s Brobeck. “We believe that more visible pricing would not only lower costs for consumers but also increase consumer confidence in agents who play a critical role in most home sales,” he added.
