Real-estate commissions evolving with market

By Elizabeth Rhodes
Seattle Times staff reporter
Q: How was the 6 percent commission paid by home sellers to real-estate agents established? It seems that with prices continuing to skyrocket, the commission doesn't really align with anything. For example, when I bought my house three years ago, the seller paid $20,000 in commissions. If I were to sell it now I'd pay about $27,000. Surely the cost of agents doing business hasn't jumped 35 percent in three years.
A: There's been an evolution in real-estate commissions over the years, said Dick Fulton, the Northwest Multiple Listing Service 2005 chairman of the board and a broker for Coldwell Banker Bain's Lake Union office.
In the 1920s, for example, a Washington real-estate association recommended a 5 percent commission to be paid by the seller. Years later, the federal government said that the use of an industry-wide commission schedule amounted to illegal price-fixing.
For the past 25 years or so, commissions have been in the 5 to 7 percent range. In recent years, discount brokerages have cropped up that charge a lesser percentage or a flat fee, usually several hundred dollars.
"The Department of Justice and the Federal Trade Commission preclude any discussion between real-estate companies on the fees they charge," Fulton said. "It must be an independent decision."
In setting their fees, real-estate companies consider "their own business model based on their expenses, profits and what's in the best interest of their clients and agents," Fulton said. The level of services also plays a big role in setting commissions.
Discount firms, for example, often don't advertise homes beyond putting them on the Internet, do not hold open houses, and don't act as an intermediary in negotiations between buyer and seller. Full-service firms, by contrast, may do all that and hold "brokers open houses" — complete with a buffet lunch — to attract other agents who may have buyers at the ready.
All this means that sellers considering working with a particular agent need to be fully informed about which services they need, which will be provided and which won't because they can vary widely. And commissions are negotiable.
According to a national real-estate-industry survey Fulton cited, the average increase in expenses for large real-estate companies has gone up 33.5 percent a year from 2000 to 2004.
"The primary contributors to that were rent increases, salary increases for support staff, Web site development and Internet tools," Fulton said.
By comparison the Everett-Seattle-Tacoma Consumer Price Index rose 9.4 percent between March 2002 and April 2004.
Fulton added one more telling detail: It's easy to think that agents representing sellers don't have to do much in the kind of sizzling market we have now, where attractive, well-priced, well-located homes sell almost instantly.
But that's not true, Fulton said, citing a home on Seattle's Queen Anne Hill that received 24 offers.
"The expertise involved today in helping a seller navigate through a multiple-offer situation is very demanding," Fulton said.
Ultimately that home sold for tens of thousands over the asking price.