The real estate market has been on quite a bull run for several years now. Low interest rates have many people taking advantage and digging up down payments on homes. Helping most of these folks are friendly real estate agents, who manage the process and traditionally earn a 6% commission.
Times are changing, though. A recent Newsweek article pointed out that according to Real Trends, the average real estate commission in 2003 was just 5.12%. That might not seem like a big difference, but it represents a 14.7% drop from the 6% level. If you're a real estate agent and your income comes from commissions, you've just taken a nearly 15% hit. Ouch.
What's going on? Well, look at some numbers. On a $250,000 home, a 6% commission amounts to a whopping $15,000. That number is hurting agents in two ways. For starters, it's attracting a lot of new people into the career. (Our struggling economy is also likely to have pushed more people into real estate, as many have had trouble finding other jobs.) With more agents on the job, there's more competition between them, making prices more elastic. (In Sacramento County in California, for example, the ranks of the local Association of Realtors swelled by 51% over the past three years.)
Meanwhile, with the housing market so busy and many homes selling in a matter of days or weeks, more people are questioning the wisdom of forking over $15,000 in fees to agents. This is driving many folks to go the for-sale-by-owner route, or to use discount "flat-fee" brokers -- or to strike discount deals with traditional agents. Even if they shave off just a third of the 6% commission, that's $5,000 on a $250,000 home.
The lesson for homebuyers and sellers is this: Think outside the box a bit. Spend a little extra time exploring your options and you may save enough money for a major shopping spree at Home Depot
You can learn much more about the homebuying process in our spiffy Home Center, which also features information on mortgages and refinancing.
Our Buying or Selling a Home discussion board is also open for business 24 hours a day, and you'll find lots of smart, helpful people there answering questions and relating their experiences.
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.