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Bargain Hunters Cut Realty Costs

Some home sellers and buyers are saving on commissions by using fee-for-service plans or flat fees.

March 18, 2001|JENNIFER OLDHAM | TIMES STAFF WRITER

It's an often overlooked statement on documents used by California Realtors: "The amount or rate of real estate commissions is not fixed by law. They are set by each broker individually and may be negotiable between seller and broker."

Translation: Commissions are not set in stone.

This declaration and its potential to revolutionize the staid real estate industry have gone practically unnoticed for decades. But a growing number of home sellers, encouraged by the Internet and brokers willing to take a risk, are seizing control of the largest cost of selling a home by opting for fee-for-service plans.

Sellers such as Corona resident Richard Stinnett, who saved $5,000 when he sold his 2,500-square-foot home last year through a broker who charged a 4% commission. A typical 6% commission on his $250,000 home would have been $15,000. He paid $10,000. Stinnett said he received a full slate of services from his broker even though he paid less.

"When I figured out how much money I was going to pay out to someone to sell my house for just a couple hours' work, when I've been making payments for many years, it just didn't seem fair," said Stinnett, who hired Help-U-Sell's Corona office to sell his home.

Thrifty buyers and sellers are also hiring e-brokers, some of whom offer rebates as incentives. Long Beach Police Officer Ed Saldana never met his real estate agent. The agent, who was recommended by a friend, works in ZipRealty's Richmond office.

She worked with agents in Southern California to help Saldana and his wife purchase a three-bedroom, two-bath Lakewood home for $224,000 in January. The company gave the couple a 1% rebate, which they applied to their closing costs.

Stinnett and Saldana are on the forefront of what some real estate professionals say is an inevitable evolution away from commission-based services and toward agents who charge a flat fee for their services, or provide a menu of separately priced items for consumers to choose from.

"Changing consumer wants and needs, plus the profitability issue, is forcing us to rethink the entire way we do business," said Laurie Moore-Moore, co-editor at Real Trends, a Denver-based consulting firm. "It will change the economics of the business."

The idea is picking up steam among real estate agents nationwide, many of whom have watched their firm's profits shrink steadily over the last decade-even though the country was enjoying its best housing market in history.

Today the average profit margin for the top 500 real estate firms is around 4%, down from about 8% of gross revenue 10 years ago, according to Real Trends.

Cutthroat competition and increasing median home prices contributed to this drop. Real Trends said these factors also forced commission rates down around 5% in many major cities last year, further putting the squeeze on profits for both agents and firms.

The real estate business is one of the last industries to make a move-albeit slow and tenuous-toward unbundling or fee-for-services. To better compete, banks, travel agencies and mutual fund companies have all unbundled their services in the last decade.

The new real estate pricing plans are likely to appeal more to sellers, who typically pay the entire commission. But buyers can also benefit, because sellers who pay their agents lower fees may be willing to negotiate a better deal on their home.

Some agents have offered fee-for-service pricing for some time to homeowners who sell their homes themselves but need help with certain tasks. Today the fee-for-service market has broadened to include sellers and buyers from different generations, age groups and income levels.

Consumers interviewed for this story said they aren't interested in the traditional discount-broker concept-a model that hasn't fared well in the industry. Rather, they want the same services offered by a traditional broker, only for less money.

"We're at a crossroads," said Julie Garton-Good, a licensed Realtor and founder of the National Assn. of Real Estate Consultants.

"The biggest hurdle both real estate professionals and consumers face is understanding the difference between discount and a la carte or unbundled services. Discount is providing an entire menu of services for a lower cost; while a la carte is unbundling various services to consumers and charging them what they're worth."

Founded in 1999, NAREC has about 250 members providing fee-for-service options in 35 states. These agents often charge hourly fees, a flat fee for a slate of services, separate fees for unbundled services, or a combination of these pricing plans.

Proponents say fee-for-service models provide benefits for consumers, who can save money by doing some of the legwork themselves, and real estate agents, who save time and money by providing clients only what they need.

For the most part, the fee-for-service model is being embraced today by smaller brokers and relocation experts, attorneys, insurance companies and others who also act as brokers.

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