Home sellers pay billions in excess agent fees, CPC report claims

"The report alleges that, typically, if a seller complained to a traditional agent that a low-fee agent was willing to charge only 1% ($9,000) to sell a $900,000 home, the traditional agent would argue that the low-fee agent has to skimp on the quantity or quality of services being offering. According to Nadel, this alleged steering remains a problem, and he argues that the industry has used this to protect many billions/year in excess fees against effective price competition."

"Additionally, Nadel argues that while many people view real estate agents as salespeople working for a commission, this assumption is incorrect. In the report, he notes that for most salespeople, the price of the goods or services they sell is set to recover the employer's costs (including a commission) plus a specific profit margin. Based on this model, Nadel notes that if a salesperson doubles their sales, they double sales revenue for their employer, which he said justifies their doubled commission."

"In contrast, Nadel notes that a home's sales price is not set to recover the seller's cost plus an additional profit margin, which he argues does not justify an agent's commission doubling only because the sales price of the home doubles. Nadel adds that analyses of the specific tasks agents perform during a home sale transaction fail to reveal a justification for consumers to pay fees based on the sale price of a home. Most of an agent's fee is compensation for their time."

Industry responses to potential threats include thwarting legislative or administrative changes, discouraging agents from openly disclosing rates, and steering clients away from low-fee brokers. Traditional agents often argue that low-fee competitors must skimp on the quantity or quality of services. Such steering protects many billions per year in excess fees by limiting effective price competition. Real estate commissions are not set like typical sales commissions tied to employer cost recovery plus profit. A home's sale price does not justify proportional commission increases. Analyses of agent tasks show fees largely compensate time, not sale-price-based value.

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