It is a tough competition among real estate agents. Navigating the real estate industry is not always easy considering that there are a lot of brokers and agents compare to homebuyers or renters. The ratio is significantly out of proportion. This is probably the reason why commissions and fees are relatively high.
It has been noted that the commission rate in the United States are so much higher in comparison to other developed countries. One hypothesis has been drawn by Economists George Akerloff and Robert Shiller, and that is homebuyers are likely inexperienced. That conjecture is explained in their forthcoming book entitled "Phishing For Phools." The book points out that the real estate market has not driven down the price of commission. The average commission rate is 6% for an existing home. The agent is taking home more or less $14,000.00 commission with that specific sale alone.
Perhaps one reason why the price of commission is high is that it is not frequent for homebuyers to avail the services of real estate agents. One reference used in that conjucture is that "by the time the typical American turns 60, there's an 80% chance that he owns his own home." This fact means that an american homeowner stays in his house for a longer time. Statistics says at least an average of 24 years. This also means that the person buys at least one house in his whole life. That being said, one could understand why people who engage in the real estate business tend to get a bigger commission.
However, another reason why the commission rate is higher in the United States is the "good old-fashioned collusion." This is the claim that was published by the National Bureau of Economic Research. Economists Panle Jia Barwick, Parag A. Pathak, and Maisy Wong on Monday. According to the report, Barwick, Pathak and Wong have conducted a study about the realtor commission in eastern Massachusetts. They have 653,475 residential listing beginning from 1998 up to 2011. Using this data, they would try to find out why the commission in the brokerage industry (focusing on the residential real estate only) is "relatively uniform despite low entry barriers and advances in technology that have reduced search costs for buying and selling properties."
The three economists who conducted the study hypothesized that commission is relatively uniform because of the " fairly unique nature of the residential real estate market, in which sellers of real estate pay both the commissions for their listing agent and that of the buyer's agent." With this arrangement, it is essential for both seller's agent and buyer's agent to cooperate in order to make a sale. However, with this arrangement also, the dominant agent or broker could decline working with upstart competitors who adjust their commissions lower than what is acceptable in the market.
Fortune reports that a recent study reveals that "brokers who charge lower commissions are punished in the marketplace." This means that they would be singled out. When a broker charges less than 2.5%, they are being discriminated against. Barwick, Pathak and Wong say that "Consistent with real estate agents steering buyers to properties with high commissions, we find that if a property has a buying commission rate less than 2.5%, it is 5% less likely to be sold and takes 12% longer to sell."
Despite being criticized by economists and or regulators, the commission has never been driven down. This practice has never been banned even when there was this 2008 settlement between Justice Department and the National Association of Realtors. The way to protect homebuyers from being ripped off is to have the Justice department look into this concern again.
High commission rate is not the only issue that most people face with agents. Even those who are looking for a house to rent or even homeowners wanting to have their apartment listed. Sometimes homeowners or renters complain of the extra charges. Either you are the owner or a renter of the apartment, This Is Money UK has some tips to fight against this type of rip off.
In its article, it says that prior to getting the services of an agent, the person needs to ask from the agents vital information. For example, if you avail the services, what are the things included? The fees being charged? What professional association and redress scheme it uses? Information about the tenancy deposit protection scheme it uses?
Knowing those information ahead of time will help you decide of availing the services and keep you from being ripped off.
