The Real Estate Industry's Resistance to Disintermediation

The real estate industry has been slower to adapt to technological advancements than other industries, resulting in higher transaction costs for consumers. Despite the rise of online platforms and competition, the average real estate commission remains high, with the Consumer Federation of America accusing brokers of acting as a price-setting cartel. The federation's report highlights the "cockamamie brokerage system" that allows agents to collect commissions from both buyers and sellers, depriving consumers of a fair deal. State laws requiring minimum service standards have been criticized for protecting traditional brokers and keeping discounters out of the business.

Key Takeaways:

• The average real estate commission was 5.1 percent in 2004, down from 6.1 percent in 1991, highlighting the industry's slow adoption of technological advancements.
• The Consumer Federation of America accuses real estate brokers of acting as a price-setting cartel to protect traditional fixed commissions of 6 or 7 percent.
• The federation's report criticizes the "cockamamie brokerage system" that allows agents to collect commissions from both buyers and sellers, depriving consumers of a fair deal.
• State laws, such as the one enacted by Missouri in 2003, require real estate brokers to provide a minimum level of service, protecting traditional brokers and keeping discounters out.
• Hungry Agents, a new business model, offers a flat-fee of 3 percent for sellers, with CEO Jim Tullman estimating that this would translate to a savings of $3,000 for a $300,000 house.
• Thomas Stevens, president of the National Association of Realtors, claims that the industry is "one of the most competitive businesses out there" and that there are no barriers to entry.
• Consumers are being encouraged to demand lower commissions and better disclosure about conflicts of interest.

Statistics:

• The average real estate commission was 5.1 percent in 2004, down from 6.1 percent in 1991 (Source: The Consumer Federation of America).
• 5.1 percent is still considered far too high by the Consumer Federation of America (Source: The Consumer Federation of America).
• A real estate commission of 6 or 7 percent is considered traditional and is still widely used (Source: The Consumer Federation of America).
• The cost of doing business in real estate is increasing, which may be a contributing factor to the high average commission (Source: Thomas Stevens, President, National Association of Realtors).
• Buyers and sellers can save thousands of dollars by using alternative business models, such as Hungry Agents (Source: Jim Tullman, CEO, Hungry Agents).

Sources:

• The Consumer Federation of America (Report: "The Real Estate Brokerage System: A Review of the Industry's Structure and Practices")
• Thomas Stevens, President, National Association of Realtors
• Jim Tullman, CEO, Hungry Agents