Real Estate Agent Fees: How are they fair?

PHOTO: Real Estate Agents

The housing market is hot, hot, hot right now as home prices continue to soar in many markets to their highest prices ever.

Since it doesn’t cost a real estate agent 10 times as much to sell a $1 million home as a $100,000 home, one would expect that the percentage fees for real estate agents would be falling. They aren’t. Why?

I started investigating the fees charged by the realtor industry some 15 years ago when I was an economics writer for the Wall Street Journal. I discovered that the real estate agents had created a de facto legal cartel that often rips off buyers and sellers of homes. The excess cost to home buyers and sellers from this industry cartel is typically in the tens of thousands of dollars for homes with a price above $500,000. For the economy as a whole, the real estate agent rules cost the economy more than $100 billion a year, and the scam continues to this day.

Don’t get me wrong. A great realtor can be a godsend for anyone buying or selling a home. The industry adds value when the agent can find just the right home for a family or a buyer willing to pay top price. My wife was a realtor. If a home buyer or seller wants the best in the business and is ready to pay a 6% transaction fee to the agents, that’s great.

Real Estate Agents laughing all the way to the BANK – $1billion more in fees earned

Too often, however, fees are fixed by the industry with little or no flexibility in negotiating the 6% for the buying and selling agents. In other countries, such as Britain and Australia, the fees are typically half or one-third as high as in the United States.

Even in ordinarily pro-competition states such as Florida and Texas, the politicians continue to protect the realtors’ higher commissions — often adding tens of thousands to the price of homes.

With online transactions becoming the norm in this digital age, the fees and commissions in most consumer industries, such as stock trading, travel, and used cars, have fallen due to online competition from eBay, E-Trade, Etsy, Netflix, Uber, Airbnb, etc. At-home shopping is practically cost-free aside from the purchase itself. Yet, the real estate price-gouging has managed to stay primarily immune from these “disintermediation” forces.

The truth is that pricey commissions persist today because of government fiat. State laws often make it all but illegal for nonregistered agents to come in with lower commissions through “anti-rebate” laws. It is the furthest thing from a free market.

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The market is so closed to competition that the Kentucky Real Estate Commission admitted its policy “inhibits free trade” and that anti-rebate laws keep prices high several years ago. Yet 40 states still have laws prohibiting full and fair price competition, and 10 states still prohibit agents from competing by offering consumers rebates. Believe it or not, the penalty for realtors providing rebates and charging less is losing their license.

Realtors prevail because they are good at flexing their political muscles. Every congressional district has hundreds of realtors, and they are active in politics. Last year, national and state associations of realtors topped the rankings of campaign contributors in both parties to maintain high commissions by protectionist rules.

There are some hopeful signs of chinks in the real estate agent cartel’s armor. Consumer-centric technology upstarts such as REX have sued to end government-created rebate bans. REX is seeking to slash agent fees, and it wants home shoppers to save thousands of dollars by negotiating with their agents free from government intervention.

I rarely agree with Joe Biden on the economy, but he declared in a recent executive order that “competition is the core ingredient for capitalism.” He has called for a federal investigation into price-fixing among competitors and occupational licensing rules. Perhaps, after all these years, he will be the president who ends the real estate racket.

SOURCE YAHOO