Group Decries Real Estate ‘Cartel’

Real estate brokers and their supporting organizations function as a cartel that stifles competition and protects high commission rates, the Consumer Federation of America charged in a report Monday.

The group said its report showed that traditional real estate firms, the National Assn. of Realtors and its state affiliates and tightly controlled regional multiple listing services constituted “the last remaining unregulated cartel functioning in America.”

The traditional brokers seek to maintain high commission rates of 6% to 7% of a home’s sale price regardless of experience or service level and stifle competition from nontraditional firms such as discount brokers and Internet-based listing services, the federation said.

Many agents also try to increase chances of a “double dip” -- taking both the seller and buyer halves of a commission -- by promoting their own listings to buyers they represent, the group said. In addition, it said brokers acting as transaction facilitators for both sides did not properly represent either buyers’ or sellers’ financial interests.

“The $24,000 most brokers try to charge for the sale of a $400,000 home would purchase many new car models or expensive medical procedures,” said Stephen Brobeck, the consumer group’s executive director.

In a large majority of states, commissions charged with regulating the industry are dominated by practicing real estate brokers who pay little attention to consumer interests, Brobeck said. He called for increased scrutiny by the U.S. Justice Department and state agencies.

In response, the National Assn. of Realtors said the U.S. real estate industry was one of the world’s most competitive business environments, where consumers could choose from among nearly 80,000 brokerages and more than 2 million licensed agents.

The Realtors cited data showing that the average home sales commission fell to 5.1% in 2003 from 5.5% in 1998.

“Adding another level of regulation at the federal level could add cost and stifle innovation,” the Realtors said.

The consumer federation urged buyers and sellers to negotiate with brokers to cut commissions through discounts or rebates. Consumers also should be clear on the amount of compensation that brokers are receiving and whether brokers will solely represent their financial interests at the closing.

Brobeck said he believed that the softening of the U.S. housing market would put downward pressure on commissions, because flat or declining sales prices would make consumers more price-conscious when shopping for real estate broker services.