Decommissioned : Real Estate Agents Cutting Their Percentages as Competition for Business Grows

Real estate agents are a talkative bunch except when the subject turns to how big their commissions are.

“They’re negotiable. That is all I have to say,” said Tom Carnahan, president of the San Fernando Valley Board of Realtors.

“I don’t think I want to comment about commissions,” said Temmy Walker, president of James R. Gary Ltd. East in Studio City. “I’m not sure I like to see discussion about it.”

“It is a real touchy subject,” said Reid Brightman, an agent for Mike Glickman Realty in Woodland Hills.

Local real estate agents are reluctant to talk about their commissions because the time-honored 6% commission homeowners pay to sell their homes has started to drop in recent months. Commissions of 5%, even 4%, are becoming more common.

“Many, many sellers really don’t need us,” said Michael Findling, an agent with Vic Harvey Century 21 Real Estate in Woodland Hills. “They could sell the property on their own.”

For about a year now, Findling has been distributing leaflets in residential neighborhoods offering to sell homes for a 4% commission (5% if another agent finds the buyer). “A lot of people are copying me,” Findling said.

“The market is so good right now there is no reason for anybody to pay a full commission,” added Susan Park, manager of Park Place Realty in Van Nuys. Park Place charges a commission of 4% or less.

Why have commissions begun to drop? This is one of the hottest real estate markets in the country. In July, according to the Valley Board of Realtors, the average price of a single-family house hit a record $265,300, up 25% in the past 12 months, while the average price of a condominium was a record $133,000, a 14% increase in the past year.

Houses are selling so fast that prospective buyers have occasionally resorted to standing in line to make bids.

There’s plenty of competition as well among real estate agents, who earn commissions not only from selling homes, but also from listing them for sale. Last year there were 8,400 real estate agents in the Valley, while only 16,495 houses and condominiums were sold for the whole year.

The competition isn’t going to ease up. Another 800 real estate agents have joined the business since January. “There are more people vying for the same commission dollars,” said Jim Link, executive vice president of the Valley board.

Meanwhile, there’s a limited amount of real estate. Last month only 5,285 single-family houses were available for sale, well below historic averages.

For decades, the real estate community typically charged home sellers a total commission of 6%. That commission legally has always been negotiable--agents must inform clients of their right to bargain--but it was usually a done deal when the agent first listed the house.

In a typical home sale, real estate commissions are split between the agent who represents the seller (by listing the home for sale) and the agent who represents the buyer.

For example, if a $200,000 home is listed for sale by Mike Glickman Realty and is sold by another realty company, say, James R. Gary & Co. Ltd., a 3% commission would go to the listing agency, Mike Glickman, and 3% to the buyers agency, James R. Gary Ltd.

Each 3% fee is typically then divided again between the agent and his employer. (A real estate agent can really bring home the bacon if he lists a house for sale and finds a buyer for it, but that is rare.)

But a recent peek at the Valley board’s confidential Multiple Listing Service, which lists virtually all of the area’s homes for sale each week, reveals that a 6% commission is no longer the rule. Of 300 single-family houses randomly selected from the MLS of August 5, 136 homeowners agreed to pay a commission of 2.5%, or less, to real estate agents who found them a buyer.

The MLS only publishes one side of the commission transaction--those offered to agents bringing in buyers. But agents interviewed said it was safe to assume the commission listed was--at most--half of the full commission, because it’s very rare that the seller’s agent would get a bigger commission than the agent who locates a buyer.

So roughly half of these homeowners end up paying a total commission of 5% or less to sell their home.

According to the MLS listings, some of the area’s biggest firms sometimes offer to sell homes for below the standard commission rate, including Mike Glickman Realty, Century 21 and Fred Sands Realtors.

“I’ve had agents tell me their company handled a transaction for 1 1/2%,” said Rosalie Gottfried, an agent with Gribin Von Dyl Realtors in Studio City. “That means the agent gets little more than a half a percent in their pocket. There is a lot of cutthroat activity.”

Adding to the trend of lower commissions is the appearance of Help-U-Sell, a discount real estate brokerage that has opened five area offices in the last two years. Help-U-Sell charges a flat fee rather than a percentage commission. The company says it does everything a traditional real estate agent does--complete escrow, arrange for inspection, help arrange the lending--except show the house and hold open houses. Help-U-Sell is owned by Mutual Benefit Life, the Newark, N.J.-based insurance conglomerate.

“I don’t care whether it’s a $30,000 mobile home or a $1-million estate. We charge a flat fee of $2,950,” said Tim Harrington, owner of a Help-U-Sell in Granada Hills. Each Help-U-Sell is independently owned and operated so fees differ from office to office.

John Flowers is a Help-U-Sell agent in Northridge. “We have created some nervousness on the part of the traditional real estate agents,” Flowers said. But the agents say companies like Help-U-Sell--which has been in business since 1976--have a hard time staying open in hard times.

Some real agents have even started paying for referrals. Brightman of Mike Glickman Realty recently sent a letter to Valley residents offering to pay as much as $1,500 for referrals. The letter infuriated his bosses. “We do not condone that kind of cut-rate discounting,” said Elaine Schram, manager for Glickman. “We are not a discount brokerage. We serve our people well and we expect to be paid well.”

Even if agents have to cut their commissions, thanks to record home prices, they might not take a cut in pay.

For instance, a 6% commission on a house that sold for $200,000 last year amounted to $12,000. That same house today could easily cost $250,000. Even with a 1% reduction in commission, the agent would still earn more; in this case a 5% commission would amount to $12,500.

Judy and Allan Simon of Granada Hills are part of the reason real estate commissions are coming down in the Valley. Six years ago, the couple sold a house through a traditional agent. When they decided to sell their four-bedroom house in April, they invited an agent from Coldwell Banker to their home. “She was persuasive, but the 6% commission would have meant less money in our pockets,” explained Judy Simon.

So they turned to Help-U-Sell. Their house sold in two weeks for $265,000, which was $1,000 more than their asking price. The Simons figure they saved $13,000 in commissions.

Says Flowers: “People can buy a new car with what they have saved with us.”