Realtors who charge the usual commission are being undercut in seller's market. Hang Nguyen The real estate agent, once again, dangles the price carrot. Home brokers typically get paid a percentage of the home's purchase price -- traditionally 6 percent -- with the selling and buying agent taking an equal share. The seller usually picks up the total tab. But that long-standing rate is once again under fire, with some agents promising to do the work for as little as a total of 2 percent. Attacks on the 6 percent rate are nothing new, often surfacing during hot markets like today's when it's easy selling for homeowners. Pat Veling, a local real estate consultant for 14 years, said this time around there seem to be more challengers to the 6 percent fee. This rivalry, in turn, forced some well-established agents, including ones from Coldwell Banker and Century 21, to drop their rates to 5 percent. ''We are under more pressure to discount commissions than ever before,'' said Dick Lobin, a real estate agent with Century 21 in Huntington Beach. CHEAPER WORKS Marie Costantino hired Better Real Estate in Dana Point to sell her home. The company charged Costantino a $1,000 flat fee that went to the agent who listed the home for sale and 2.5 percent more against the sales price to pay the buyer's agent. She estimates she saved $19,000 by turning away the traditional agent. Costantino admits she got less for paying less, but that was fine by her. There was no direct mailing of sales literature or online virtual tour of her three-bedroom house in Laguna Niguel that listed for $614,900. She sold her home this month for full price after 60 days on the market. ''In this hot seller's market, all you need is a sign in your yard and a listing on the'' Multiple Listing Service, which many buying agents access, Costantino said. Less service won't fly with Jeff Rosenbery, 46. He wants a real bargain, paying less for the same or better service. Last month he hired a newcomer to the local broker industry, Catalist, because he thought it would provide full service. He's paying a total of 3 percent to sell his Huntington Beach home, listed for $1.25 million. Rosenbery thinks the Catalist agent has kept him more up to date about the selling process than a traditional broker. His agent always meets prospective buyers and their agents at the home. His past agents didn't always do that. ''I'm definitely not missing out on anything I've paid more for in the past,'' Rosenbery said. ''If things continue the way they are now, I will never go back'' to traditional agents. LOW-COST CHOICES The discounters say their agents and companies do well for themselves. At Catalist, agents still make good money off 3 percent for several reasons, company officials say. The company opened shops in Newport Beach and Huntington Beach this year with plans for another in Laguna Niguel next month. Because of higher home prices, ''we are charging in absolute dollars the same amount of money Realtors charged five, six years ago,'' Catalist co-founder Michael Davin said. Catalist agents only represent sellers. Because they don't deal with buyers, a more time-consuming process, a Catalist agent can be about four times more productive than the average agent, said Catalist co-founder Hal Ellis, who also founded Grubb & Ellis, now a global commercial real estate brokerage. Another difference is that Catalist keeps a bigger portion of the commission its agents receive, Ellis said. That leaves more money to spend on advertising the seller's home, he added. Gael Investments in Huntington Beach cuts corners to keep the commission rate low. Terrence Branley, owner of the 1-year-old discount brokerage, charges 4 percent or less. He uses the conventional MLS as his main vehicle of advertising. Only if responses to a home's listing are limited will he use direct marketing. And if that doesn't work, then he hits major newspapers. He also doesn't hold open houses, saying they rarely catch a buyer. Some advertising can ''be a waste of time,'' Branley said, eating up cash better spent on paying a higher fee to the buyer's agent. OLD-SCHOOL RULES Traditional, full-price agents see a seller like Rosenbery and note that less service may turn off sellers. On top of heavy advertising in major and ethnic newspapers, online, on the radio and in promotional fliers, Century 21 agent Lobin notes that his boss also has a lawyer on retainer and error and omission insurance in case of a problem. For example, if a seller forgets to disclose some information that results in a lawsuit by the buyer, the insurance would kick in. There are training issues, too. Most agents at Coldwell Banker Coast Newport Properties in Newport Beach attend quarterly price-negotiation seminars, office manager Gary Legrand said. ''When it comes to the negotiation part, that's where the agent is worth the 3 percent,'' Legrand said. ''At the end of the day, the seller could have less in their pocket because a less-experienced agent got less for the home.'' Human nature plays a part, too: People will often work harder for a bigger payday. Sellers may get more offers and higher prices if they go with a selling agent who pays their buying counterpart no less than 2.5 percent. At a higher commission, buyers' agents are more likely to show the home to their clients. Sharlene VanHooser, who's been an agent for three decades, says she would rather knock on doors of people not selling and persuade them to put their home on the market than to accept low commission rates. ''Who wins?'' she asked. ''No one wins when commission rates are cut.'' STIFFER COMPETITION Raphael Bostic, real estate expert at the University of Southern California, notes that technology is changing the housing marketplace. Internet-based companies, smaller and less well-known, entice consumers with discount rates. Clients on their own can list their properties and house hunt online -- jobs traditionally done by the agent. So ''the profit margins have gotten much thinner,'' said Bostic, adding that what these Web-based companies are doing is similar to what E-Trade did for the mortgage industry. Data exists on the volume of discounted deals in O.C., but they're kept a secret. Veling, a consultant whose clients are mostly traditional brokerages, declined to give up his research. He did, however, offer market-share figures, one way to look at the alternative sales business. EHomes.com Realty and Superior Homes are the top leading discount companies that do business in Orange County. EHomes.com and Superior each sold close to 90 homes for the past year ending June 30. Their O.C. market share hovered around one- quarter of a percent. By comparison, the top two traditional brokerages, Remax and Century 21, lead the industry with O.C. market shares of 15 percent and 14 percent, respectively, said Veling, owner of Real Data Strategies in Brea. Alternative companies came and went in the past, Veling said. It won't be different this time, when they will disappear as the market cools, he said. However, Lobin, of Century 21, thinks they're here to stay. ''They work best for sellers who want to shoulder some of the work and save some money,'' he said.
October 26, 2003