Real estate commissions in the United States are higher than any other industrialized nation. While fees in the U.S. are still averaging over 5%, in the U.K., for instance, they are 2%. That means that home sellers typically pay more for real estate services in the U.S. than other countries. Could it be that real estate is harder to sell in the United States than elsewhere in the world? Hardly – the Realtor® Multiple Listing Service – MLS – is one of the most efficiently run systems anywhere. Acting like the stock exchange, the Realtor® MLS allows all of the Realtor®s in a given geographic region to pool their resources and share access to information about properties for sale, making finding and selling a home tremendously convenient.
So why do many Americans continue to pay such high commissions relative to other countries? According to the independent study by Mark Nadel at the AE Brookings Joint Center, A Critical Assessment of the Standard, Traditional, Residential Real Estate Broker Commission Rate Structure, the real estate commission structure is a poor way to compensate a real estate agent for their time. Not only does it create a poor incentive for the agent to work for the best possible price for their client, there is often a complete disconnect between the time invested by the agent, quality of service and the amount paid by the client.
Discount Realtors and flat rate real estate companies offer alternatives to the traditional commission rate based system. With a discount real estate broker you can get the same bundle of services for less than the prevalent rate in your market. With flat rate, or limited-service brokers you can pick and choose the services you want on an a la carte basis. Either way you can stand to save thousands of dollars in fees, but with flat fee brokers you pay only for the services you use.
Flat fee MLS also provides significantly higher marketing exposure than FSBO. The reason is simple – most buyers go to real estate agents using the MLS to purchase a home. In fact, the most recent comprehensive study showed that over 75% of home buyer’s use a real estate agent when purchasing a home.
Flat fee MLS offers for sale by owner home sellers the best of both worlds. A relatively recent entry to the real estate brokerage industry, a flat fee MLS listing allows home sellers to place their property in the Realtor MLS and on Realtor.com for an upfront fee (usually in the $500 range) instead of paying a whopping 6% commission at closing. A flat fee MLS listing allows a home seller to lower their price and still, maximize their net return. Studies show that a MLS listing increases the odds of selling a home by providing the highest marketing exposure possible. Higher exposure means a greater demand and consequently a higher price.
Here’s how it works: Instead of listing with a traditional broker, find a flat fee broker offering MLS entry only listing of homes for sale. (for a nationwide listing of flat rate brokers visit www.Bloomkey.com). A flat fee broker will enter your property into the Multiple Listing Service in your area where it can be viewed by all of the real estate agents as well as their buyers. If a buyer’s agent brings you a buyer, you pay them 1/2 of the normal commission amount, generally around 3%. For every $100,000 of your sales price, you save approximately $2,500. That means on an average $200,000 home, you can lower the sales price by about $5,000 and still net the same amount of money from the sale as if you had used a traditional real estate agent. Of course, all other factors being equal, a house selling for $195,000 sells before one selling for $200,000 in any market.
Could 2009 be the year of the real estate comeback? All indications are that this could be the year that a real estate recovery starts to take form. Interest rates are heading down, the incoming administration is looking to jumpstart the housing market with an array of iniatives, and people waiting on the sidelines to buy a new home are creating a climate of pent-up demand.
There are signs of life in several major markets. Here’s what Lawrence Yun, Cheif Economist of the National Association of Realtors, has to say:
“Despite these challenging economic times, existing home sales will be rising. Why? The answer, in a word: affordability. Currently, the most important factor driving home sales is affordability. With home prices falling in many parts of the country and mortgage rates still near historic lows, affordability conditions have markedly improved. Even with rising unemployment, nearly 93 percent of households will have jobs. These 93 percent of the working households (rather than 95 percent during good economic times) respond to home buying incentives. Measures such as the recently enacted first-time homebuyer tax credit and a larger number of mortgage loans that qualify for purchase by Fannie Mae and Freddie Mac and through the FHA program will further bring homebuyers to the marketplace.”
While it’s likely that the housing recovery will take years to complete, it’s a good bet that it starts by the middle of 2009. With so many ‘deals’ to be had, it’s only a matter of time before buyers and investors get back into the market in a meaningful way.
How could a nationwide MLS help for sale by owner sellers? FSBO home sellers who utilize the latest online flat-fee MLS listing services of websites like bloomkey.com could benefit from the creation of a nationwide MLS. These sellers who take advantage of the marketing exposure provided by the Realtor MLS and Realtor.com would have their properties made available to an even larger pool of potential buyers. With a national Multiple Listing Service, a listing in one city or region would immediately become available to be seen to Realtor buyer customers all over the U.S. With relocation now representing as much as 30% of the market in many areas, this could be a boon to seller’s of real estate, both traditional real estate agent listed and those listed for sale by owner.
Some states have already consolidated their MLSs into one large regional or statewide MLS. MRIS serves participants in Northern Virginia, Maryland, Pennsylvania and West Virginia. Connecticut MLS is a statewide MLS. There are already several separate data-sharing and other collaborative MLS efforts going on in California now in Northern California and Southern California and also in the Bakersfield-Fresno region. So, obviously the technology is certainly available for a national effort.
Then, what’s stopping the creation of a National MLS you might ask? Political infighting among the numerous city and regional MLSs is the main culprit. A nationwide MLS, while representing a tremendous benefit to it’s member’s and consumers, is being prevented by the individual MLS executives who face loss of control or even job loss that would be brought about with the consolidation. According to Scott Kucirek, head of the California initiative to start a statewide MLS, …”it’s a little about power and politics, and unfortunately in those conversations what gets left out is what’s right for the members. Everyone says they really are trying to do what’s really right for the members, (but) when you really look at it in many cases that’s not the intent. The politics is the issue.”
