Realtors' Fees Are Pressured
As Low-Cost Competitors Gain
By PATRICK BARTA
Staff Reporter of THE WALL STREET JOURNAL
The sluggish economy is already putting growing pressure on Realtors' commissions, but consumers will have to wait a little longer for the Internet to bring full-fledged competition to the real-estate world.
This past weekend, the biggest group of real-estate agents in the country found itself under surprising pressure from its own members to do something that would have been unthinkable only recently: clear the way for Internet-based real-estate brokers to provide more home listings and other services at a discount. In the face of complaints from Realtors anxious to preserve their commissions, the group decided at its annual convention in New Orleans to table the issue until May. But many expect it to pass then.
"The cat is already out of the bag," says Cantey Davis, president of First Multiple Listing Service Inc. in Atlanta.
Discount real-estate brokerages have been operating on the Web for years. However, their growth has been severely restricted in part because they generally don't have access to the exclusive listings that members of the National Association of Realtors share.
Some Internet-based real-estate firms offer home-shopping services at a discount.
• ERealty.com1 and ZipRealty.com2: Both charge sellers a commission of as low as 4.5%. Both also offer cash rebates of up to 1% to the buyer.
• Blueedge.com3: Charges sellers a commission of as low as 2%. Available only in Pennsylvania and Illinois.
• YHD Foxtons (www.yhd.com4): Charges sellers a commission of as low as 2%. Available only in New York, Connecticut and New Jersey.
More recently, a handful of low-cost Internet competitors such as eRealty Inc. of Houston and zipRealty Inc. of Emeryville, Calif., have begun tapping in to Realtor databases in a handful of cities and putting the listings on their Web sites. Their strategy: hire a few local Realtors who can provide the information.
Realtors are beginning to feel that pressure. Coldwell Banker, for example, recently introduced a Web-based brokerage that offers discounted fees in Pennsylvania and Illinois. It isn't just the Internet providing the pressure. Slowing sales in markets such as Dallas, Atlanta and Denver -- especially for high-end homes priced above $500,000 -- have prompted some Realtors to reduce their commissions to close deals or get lucrative corporate relocation business.
At issue now is whether Internet companies should have the right to post on the Web all the contents of Realtors' databases of home listings, known as Multiple Listing Services. Historically, Realtors have guarded their listings under lock and key, forcing buyers to go directly to Realtors to find out which homes are for sale. That, in turn, has forced sellers to continue paying hefty commissions, generally 6% of the home's price, for the privilege of being listed and having a Realtor represent them.
At the Realtor convention over the weekend, it became apparent that many believe that it makes more sense to embrace the latest changes rather than fight to hoard listings. Many believe buyers use online listings essentially just for background information. Even if there's more information available on the Web, says Mr. Davis, of First Multiple Listing Service, "the average person buying or selling a home still wants to deal face to face with someone," meaning they'll continue to pay Realtor commissions.
The proposed rule would have allowed any Web site that fulfills certain minimal requirements to publish listings online. Those requirements include obtaining the names and addresses of users to help make sure they are actual homebuyers and not, for example, criminals casing potential victims. Sellers, meanwhile, would have been given the choice of "opting out" of the program so that their homes couldn't be made available to users of the Internet sites.
Many Realtors bristled at the idea of fully sharing listings. "You can't just put all that information on the Internet and have people walk up to the front door of the house," says Tracey Ricker, a real-estate agent in Juneau, Alaska, who said she's worried about the privacy of her clients and the potential of losing clients who might do their home-shopping on the Web.
Even with Monday's postponed decision, consumers still have other options to cut Realtor fees. Some bypass Realtors entirely, using a "For Sale By Owner" transaction, though this tactic doesn't work well in slow markets. At the same time, auction portals like eBay.com are now providing home listings, often without commissions. And it's often possible to haggle on fees when dealing with a traditional broker.
At a standing-room-only meeting Saturday morning, it appeared that most Realtors were willing to bite the bullet and support the rule. But as the weekend passed, concerns grew. Monday, Realtor leadership decided to wait until its next meeting in May to make a decision, and spend $200,000 in the meantime educating members about all the issues involved.
"There was a lot of concern that the decision was really important, and they wanted to be sure they were fully aware of all its implications," said Steve Cook, a vice president of public affairs at the Realtors' association.
ERealty and zipRealty have each done about 4,000 sales since their respective inceptions in 1999. That's tiny compared with the millions of homes sold each year, but many expect such Internet firms will grab big chunks of the market in the coming years.
Homestore.com, arguably the best-known real-estate Web site, typically gets the listings from traditional Realtors that charge 6% commissions. |
