(This article was previously published in the New York Times. A link to the original article can be found Here)
PRICES in the New York real estate market may rise and fall, and trends in housing may come and go, but one number has remained largely unaffected: the 6 percent broker commission.
Let's Make a Deal
Sellers may be able to reduce the broker’s commission. Here are some strategies:
► Interview several agents before signing a listing agreement, and ask if they will accept less than 6 percent.
► If the buyer does not have an agent, negotiate a reduced commission — for instance 5 percent.
► Engage the same agent to sell your current home and to buy your next one.
► Choose an agency that offers fewer services and do some — or most — of the work yourself.
► Use an independent agent who does not have to split commissions with a large company
But lately that figure is under attack by buyers and sellers looking to save money in a tough economy, and by an array of alternative real estate business models that offer an à la carte menu of services to clients willing to do some of the work themselves.
For as little as a few hundred dollars a month, sellers can pay an agent to post their listing on broker databases and to handle some of the negotiating. And agents — even those from larger firms — may settle for 5 percent, or occasionally 4 percent, to get a deal done.
Nationwide, the average commission in 2009 was 5.36 percent, according to data collected by Real Trends, a real estate research firm, indicating that there is room for negotiation. “The standard 6 percent went out the window a long time ago,” said Steve Murray, the editor of Real Trends. The New York City market is no different from the national one, he said.
Of course, many agents defend the 6 percent commission, saying that for that amount, a full-service broker will land a higher price, market a property more comprehensively, and insulate sellers from the often emotional process of negotiating and closing a sale.
But, as Mr. Murray said, “For certain kinds of property at certain times, New York City brokers are cutting their commission to get a deal like everyone else.”
Many brokers are reluctant to speak publicly about commissions; representatives from Halstead Property, the Corcoran Group and Prudential Douglas Elliman declined to discuss the topic. But it is hardly a secret that an agent may accept a 5 percent listing if the seller is a repeat customer, a friend or family member, or buying through the agent as well as selling. That lower number is also more common when the agent does not have to split the commission with a buyer’s broker, or for properties in the multimillion-dollar range.
“At a certain price point, 6 percent just feels vulgar,” said Kathy Braddock, a founder of Rutenberg Realty. “I would say there’s negotiability in the higher numbers.”
Like many agents, Ms. Braddock emphasized that there were no hard and fast rules as to when a lower commission may be offered, but she said market conditions and a listing’s appeal played large roles.
“It’s not only about price point,” she said. “It also depends on how difficult a property is to sell.”
Another factor is what percentage of the commission the listing agent has to hand over to his or her employer; at large firms, less experienced or less productive agents may not pocket even half of the commission they earn. So for a $1 million property, a 6 percent commission of $60,000 split first with a buyer’s broker and then an employer may mean the selling agent earns $15,000. And that’s before expenses like marketing.
Rutenberg Realty follows a different model, with agents paying $99 per month to be part of the company, then $1,000 on deals involving properties that sell for $1.5 million or less and $2,000 for sales above that amount. This arrangement gives agents more flexibility to set their own commissions, since they don’t have to get approval from a manager, Ms. Braddock said, though she stressed that Rutenberg does not consider itself a “cutting commissions” firm.
Doug Heddings, who started the Heddings Property Group in 2009 after working at Prudential Douglas Elliman, says commissions “have always been negotiable.” But now that he is an independent broker, he said, he has more freedom to set his fee than when he worked for a large firm.
Still, Mr. Heddings sees the 6 percent commission as justified by the money and time he spends marketing a property. And, he said, he is more likely to cut a deal on his commission during the negotiating process to bridge a gap between the buyer and the seller.
“If we’re $10,000 or $15,000 apart,” he said, “I’ll do what I can with a commission to make sure a deal happens.”
One of the sticky wickets in any discussion of commissions is that legally, the industry cannot mandate a 6 percent commission because it would be price fixing, a violation of antitrust laws. But Hall F. Willkie, the president of Brown Harris Stevens, said 6 percent was fair, given increasing marketing costs and the complexities of navigating hurdles like co-op board approvals. He also pointed out that agents earn a commission only when a property sells — and that this process can take a year or more.
“Brokers are not paid for their marketing costs,” Mr. Willkie said. “They’re not paid for their time. They’re paid for results.”
Still, for some sellers, a commission of tens of thousands of dollars to sell a property seems too steep, especially as they cannot expect to make as big a profit as they might have a few years ago — if any at all.
Debra Pohl and her husband, Daniel, opted to list their two-bedroom Morningside Heights apartment last January with an agent who offered an alternative to the standard commission. The agent, Keith Burkhardt, the president of the Burkhardt Group, charged the Pohls a flat rate of $1,000 to submit their listing to real estate databases. The couple handled all the open houses, showings and deal negotiation themselves.
Although they advertised that they would pay a buyer’s agent a 2.5 percent commission, all of their offers came from people who were not working with brokers.
“We sold our place for $520,000,” Ms. Pohl said. “At 6 percent, that would’ve been over $30,000, and we did it for $1,000, so the savings was really, really important to us.”
Ms. Pohl said she and her husband had sold a previous home in New Jersey themselves but decided to list their apartment with Mr. Burkhardt because at the time, Web sites like StreetEasy did not allow for-sale-by-owner listings. It has since changed its policy.
She said she did not believe that a full-service agent could have secured a higher price — one of the main arguments brokers make to sellers.
“We ended up selling our apartment for slightly more than the bank evaluated it at,” she said, “so we feel we did pretty well. That tells me that we couldn’t have gotten more with a broker.”
The Pohls also worked with Mr. Burkhardt last year when they bought an apartment for $750,000 on the Upper West Side. They went with him then because he offers buyers a rebate of up to two-thirds of his commission, based on a similar self-service model. Clients search for apartments and visit open houses on their own, putting Mr. Burkhardt’s name down as their broker, and he helps out by booking other appointments and offering advice during negotiations.
These days, Mr. Burkhardt considers himself mostly a buyer’s broker, describing his niche as that subset of real estate enthusiasts who are glued to sites like StreetEasy and don’t need a lot of hand-holding while visiting Sunday open houses, a task that can take up a lot of a broker’s time.
“They’re doing, let’s say 60 percent of the research themselves,” he said, “and they want to be compensated for that.”
He acknowledged, however, that setups like his had yet to catch on in a big way.
“People like to complain about broker commissions,” he said, “but they’re afraid to break ranks with the status quo and go with a firm or a model that is different than what everybody accepts.”
Another company offering a hybrid service is RealDirect, which charges sellers $395 per month, or a 1 percent commission, to distribute a listing to major real estate databases; owners handle open houses and showings themselves. Sellers can pay a 2 percent commission for what RealDirect calls “broker-managed service,” including pricing and staging advice, and the handling of negotiations.
Doug Perlson, the chief executive of RealDirect, said 3 of the 13 apartments listed through the company, which started last summer, had sold or were in contract.
One of those properties is a one-bedroom Greenwich Village apartment owned by Colleen Gray, which is scheduled to close in mid-February. The listing price was $920,000.
Ms. Gray said she listed her apartment with RealDirect in late October after having tried to sell it herself for about a month. She went with RealDirect because she did not feel her previous real estate agents had earned their commissions.
“I have a very desirable apartment, in a good building, and I work from home,” Ms. Gray said, explaining that these factors made it easier for her to opt for a no-frills agency. “I was available at the drop of a hat for a showing. Realtors, on the other hand, have their own schedule.”
RealDirect offers clients some professional backup, an advantage over the lonely sale-by-owner transaction if things go amiss (Mr. Perlson is a member of the Real Estate Board of New York). However, the 3 percent commission that sellers often offer buyers’ agents to encourage showings can take a bite out of the potential for significant savings.
D. J. Jaffe, a retired advertising executive, is selling the two-bedroom apartment at West 27th Street that he has owned for 20 years. He chose RealDirect for reasons similar to Ms. Gray’s: he has the time — and the enthusiasm — to do some of the work himself. He is asking $899,000.
At an open house in early January, Mr. Jaffe welcomed a steady stream of prospective buyers, talking up the apartment’s features (which walls could be altered, where a second bathroom could be added) and the neighborhood’s appeal (good transportation, a Whole Foods), as well as playing with visitors’ dogs (the building is pet-friendly).
All three sellers who declined the standard commission model said anyone considering this option should be prepared to invest a lot of time in the sale, and to develop a thick skin for comments made during showings and the back-and-forth of negotiations.
Mr. Murray of Real Trends said he believed cultural reticence about haggling had helped to preserve the traditional broker commission.
“Will we see more options? Yes,” he said. “Will consumers take advantage of them? Some will. But I think a lot of Americans don’t have the personal skills or even the desire to negotiate a deal.”
|Last Updated on Wednesday, 06 July 2011 13:39|
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