More Real Estate Brokers Are Reducing Their 6% Fees

Later this month, when Labinov is scheduled to close on a 3,000-square-foot townhouse in the up-and-coming West Loop neighborhood in Chicago, he will save as much as $4,500 off his broker's commission.

The real estate madness of the past several years had one side effect that often goes unnoticed today: It created a glut of real estate agents. "There are a lot of people out there who have been attracted to the possibility of getting 6% of what are now very high sale prices," says Lawrence White, an economics professor at the New York University Stern School of Business, who recently published a paper on competition in the residential real estate brokerage industry.

Consider this: The National Association of Realtors (NAR) had 1.36 million members in 2006, when 7.5 million new and existing homes were sold. (Not all real estate agents have a Realtor certification and the total number of licensed real estate agents is likely double that, or more than two million, according to NAR's spokesman Walter Molony.) Back in 2000, NAR had half as many members — 767,000 — to share 6.5 million home sales.

As more brokers compete for sales in a slowing real estate market, savvy homeowners can save thousands by negotiating their commissions. "Commissions are becoming more negotiable than used to be the case," White says. He chalks it up to several factors, including more competition from discount and a-la-carte brokers, which offer less comprehensive services than full-service brokers, but charge discounted sales commissions or offer buyers rebates upon closing. (For more on discount brokers, click here.) And then there's more consumer awareness of the market. Thanks to web sites like Zillow.com, anyone with an Internet connection can find out what homes are for sale or recently sold in a given area — information once only available to real estate agents.

In theory, of course, broker commissions are always negotiable. Setting up fixed commission rates has, in fact, been considered illegal since a 1950s Supreme Court ruling. But real estate brokers certainly don't want you to know that. "The owners of the large [broker] firms want everyone to think the broker fee is 6%," says Jay Michael, Labinov's realtor and the founder of Estate Property Group, a boutique real estate firm in Chicago that, while a full-service brokerage, negotiates its fees with its clients, typically charging 4.5% to 5.5%.

But Diane Saatchi, a senior vice president at the Corcoran Group, a full-service real estate brokerage in New York, says negotiating broker fees can be a big mistake if you want your home to sell fast. "Imagine there are 10 properties for sale," she says. "Nine are offering a 6% commission, one is offering 5%. And they're all equal [properties]. Which one is likely to sell first?"

Not the 5% one, she says, as buyers' brokers — who get half of the selling broker's commission — will be less inclined to show it to their clients. "People who try to negotiate upfront, I'd never take that listing," she says, suggesting that sellers try to negotiate a lower commission once they have an offer from a buyer.

She may be one of the last holdouts. Even traditional full-service brokers are starting to realize the need to compete on fees. The average home-sale commission at Realogy Corp., which owns full-service brokerages Corcoran, Coldwell Banker, Sotheby's International Realty, and franchises Century 21, was 2.48% in 2006, according to the company's annual report filing with the SEC. That figure has been declining steadily since at least 2002, when the average was 2.63%. This means the total commission paid out by sellers actually averaged less than 5% last year. (According to a Coldwell Banker spokesman, commissions vary greatly across the country, so while some areas may average more than 6%, others may average much less.)

Meanwhile, some full-service brokers say they have always given breaks to clients, regardless of the real estate market at the time. "I've done that for family members and for repeat buyers or sellers that have stayed with me over the years," says Susan Moock, a realtor with Keller Williams Realty in Bucks County, Pa., who has more than 20 years of experience. She says she's often given breaks to her sellers or a credit toward closing costs for her buyers, coming out of her own part of the commission.

These days, she notes, she is seeing more commission reductions as house prices have increased. "I hardly ever charge a full 6%," she says. "If the people are not resistant, then of course I'll charge 6%. But if they're hemming and hawing and say that's a lot of money on a $600,000 home, that is a lot of money."