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Consumer Federation of America Study: New Research Study Analyzes Hidden Real Estate Commissions

Dec 5, 2019 10:27:21 AM

Consumer Federation of America Study: New Research Study Analyzes Hidden Real Estate Commissions

With a slew of lawsuits attacking the way commissions are charged, it’s not surprising the Consumer Federation of America has a new report out. We analyze the results.

October 28, the Consumer Federation of America released a new research report entitled “Hidden Real Estate Commissions: Consumer Costs and Improved Transparency,” wherein they share the findings of their research buttressed by other historical findings of this topic. Their timing is not surprising given the state and national lawsuits attacking the way commissions are charged and the actual level of commissions.

Consumer Federation of America (CFA): For most major consumer services, consumers can easily access information about prices. A large number of services disclose their prices online.

REAL Trends (RT): Well, many do, except other professional services like doctors, hospitals, accountants, and lawyers. Go ahead and find their prices online.

CFA: Traditional firms that dominate the residential real estate brokerage industry choose not to advertise their commission levels or disclose these levels on their websites.

RT: That is because commissions are negotiable between an agent and the consumer. They always have been. And, they are being negotiated at increasing levels as confirmed by the decline in the national average commission rate of between 40 to 45 basis points in the last six years. Also, Redfin, HelpUSell, Assist2Sell, and thousands of other discount brokerage firms make offers of low-cost commission prices every day in a large number of markets, yet they have less than a collective 2% market share in the country. What does that tell us?

CFA: Not surprisingly, many consumers do not know that commissions are typically 5-6% of the sale price. In a national survey of a representative sample of 2,009 adult Americans, only 32 percent said they thought that agents typically charged this amount. Even among the 453 who had sold or purchased a home in the past five years, only 44 percent believed that the typical commission rate was either 5% or 6%.

RT: Again, how often does someone buy or sell a home? Research says they do it every 8-10 years for most families. Yet, somehow, they are supposed to remember what the commission rate is or was or might be. What was the charge you paid the last time you had your teeth cleaned, or had your taxes done? Do you recall what you paid?

CFA: In the United States, consumers pay an estimated $100 billion annually in commissions.

RT: That number is too high by about $30 billion, or 42% higher than the likely real number–but heck who cares about doing real research?

CFA: In the more recent 2019 CFA survey, the question was asked, “How frequently, if at all, do you think that real estate agents are willing to negotiate their commissions?” Some 33% said, always or most of the time, 46% reported some of the time, and 21% said never or almost never.” This survey also showed that for those who bought or sold a home using an agent in the past five years, 45% would always or most of the time, negotiate, and 37% said they would negotiate some of the time.

RT: Their survey debunks their high-level statement. While few brokerage firms or agents publicize their commission rates, a majority of agents do negotiate the commission they charge. This is a fact well known to most brokerage firms and agents. They deal with it every day.

Conclusion

I’m sure that the Consumer Federation of America does good work in many areas. But, their historical antipathy towards the residential brokerage industry shows through once again in this release. Their 2019 survey shows that a majority of consumers are aware that commissions are negotiable. And, while it’s true that many consumer product firms publish their prices, most professional practices do not and never have. Again, while it’s clear that real estate commissions are negotiable, when was the last time you negotiated with your doctor, lawyer, accountant or dentist?

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