The landmark court settlement with the real estate industry, approved by a judge in late November, was supposed to shake up the real estate industry, making housing more affordable by slashing agent commissions.  However, many brokers have already crafted workarounds to preserve the status quo.  

Fortunately, consumers can still outsmart the industry and save more than $10,000 on a $500,000 home sale. Some savvy homeowners avoid high commissions by turning to startups. Those who use such companies as Houwzer and Trelora now pay only 1% in real estate commissions, compared to the typical 3% fee. Redfin, meanwhile, charges sellers 1.5% for standard services.

For years, traditional brokers have managed to force out such upstarts by disparaging and sabotaging them. They claim these new entrants cannot possibly provide full quality service at their prices, arguing you get what you pay for.  Consumers are understandably suspicious of lower-fee agents, reluctant to take risks on the biggest investment of their lives.  How can anyone provide quality service at one-third of the decades-long typical rate? It seems like there must be a catch.  But there is not.  Just as technology and competition slashed commissions for travel agents and stock brokers (and real estate agents in other nations), such savings should be available to American home buyers and sellers.

The evidence is clear.  Traditional agents will sell a $300,000 home for a 3% sellers’ commission, that is, $9,000.  But if, two years later, the price of that same house spiked to $900,000, that agent would demand $27,000.  Why do consumers willingly pay $18,000 extra although the agents’ fixed costs and time spent remain virtually the same?

Consumers may accept this price hike because most salespeople typically earn commissions based on their sales revenue.  Those revenues include a profit margin, and the salesperson collects a share of the profits they produce.  But real estate agents do not make money through profit margins.  There is no reason they should collect three times more in fees for the $900,000 home than the $300,000 one.  They do not generate triple the profit.

Real estate agents are more akin to lawyers or accountants and like those professionals, should be paid for their costs and special expertise – either by the hour and/or with a flat rate.

Consumers should also understand that traditional brokers protect their excessive prices by sabotaging lower-priced competitors. They frequently steer potential buyers away from homes represented by low-fee agents. Meanwhile, they warn potential sellers that they could miss potential sales with a low-fee agent because of rampant steering practices. One investigation found that more than 700 agents would not show homes represented by REX, a low-cost broker, because the company refused to hide buyer agent commissions in its pricing, as traditional agents do.  In recent years, tactics like this have forced many low-fee companies out of business, including Foxton and Purple Bricks.  

Why hasn’t the government ended such apparent boycotting?  The courts do not consider steering to represent an illegal conspiracy under current antitrust law.  And legislators are reluctant to change the law, given that brokers, highly motivated to protect their annual commissions of as much as $100 billion in the aggregate, are among their largest donors. No administration will want to anger the National Association of Realtors and its 1.5 million members.

Rather than reflexively rejecting low-priced agents, consumers should judge all agents on their records.

Sellers who choose traditional agents should insist they receive bids from all buyers, including non-traditional agents.  Buyers should demand to see all homes that meet their search criteria, including those represented by non-traditional agents, and possibly do their own brokerage price monitoring.  These tactics should encourage lower-priced, high-quality agents into all local markets and pressure traditional agents to match those prices.

As a result, buyers and sellers could help change the real estate industry on their own, a feat that even the most prolonged lawsuits seem incapable of doing. In the process, they could save themselves thousands of dollars on the biggest purchases of their lives.