Report Says Real Estate Commissions Unfairly Inflated; More Agents Struggle to Get By

As if rising property taxes and insurance rates weren’t enough, Realtor commissions may be inflated — by more than $30 billion annually — a new study suggests.

Mark S. Nadel of the AEI-Brookings Joint Center for Regulatory Studies says in his report that real estate agents charge too much commission.

He calls commissions based on a home’s sales price “an anomaly” akin to a CPA basing his fee on his client’s gross income.

“Real estate broker commissions are [strangely] unrelated to either the quantity or quality of the service rendered or even to the value provided,” Nadel writes.

When dealing with real estate agents, Nadel urges “fee-for-service” pricing that would combine “flat fees, hourly fees, and bonuses, including percentages of extra value created.”

Realtors counter that they get paid only when a sale closes.

The AEI-Brookings Joint Center is an offshoot of the conservative American Enterprise Institute and the liberal Brookings Institution.

The report is just the latest to pile on Realtors for charging too much -— at a time when many agents are struggling to make a living amid current market conditions and uncertain Florida home mortgage rates.

When Jacquie Cofer launched her real estate career in June, she entertained visions of a six-figure income and plenty of time for her two children.

The once-sizzling, now-fizzling Palm Beach housing market has jolted her back to reality, however. The Jupiter, Fla., woman gave up a six-figure salary to chase real estate riches, but she hasn’t made a penny as an agent. Now she’s working two full-time receptionist jobs as she waits for the housing market to turn.

“I thought real estate would be a perfect match for me. But there’s just no new buyers. Even if you can get a good deal on the house, the taxes just kill you,” Cofer said.

Amid the historic housing boom of the past five years, starry-eyed agents like Cofer flocked to an industry that they thought would guarantee high pay.

Membership in the Realtors Association of the Palm Beaches has more than doubled in the past five years, while St. Lucie County’s group saw its rolls double in only three years.

The newcomers learned the harsh reality of the real estate industry: It’s an easy business to get into, but it’s a hard one to make a living at, especially when the Florida housing market slows.

Agents are independent contractors who get paid only when they sell homes, and they typically pay marketing expenses out of their own pockets.

• The number of home sales in Palm Beach County has fallen ever since 2001, according to the Florida Association of Realtors.
• Today, there are some 11,000 Realtors in a county that’s on pace to sell less than 10,000 existing single-family homes for the year.
• The Treasure Coast has seen a similar trend develop in recent months. The result? Too few deals, too many agents.

“Some agents are starving,” said Jerry Mabus, president of the Realtors Association of St. Lucie.

Palm Beach County brokers expect an exodus of agents this month, when dues to the local board of Realtors are due. While Florida mortgage costs have subsided a bit of late, and experts are cautioning not to worry about the long-term future of house values, it’s clear that in terms of the volume of people trying to make a living in real estate, there are not enough sales to go around.