International Commission Comparison Misleading

Is it fair to compare U.S. commission rates with rates in the U.K. and other developed countries, as some academics have done? No, says NAR, because differences in brokerage practices between the two render any comparison meaningless.

What's more, with nationalized health coverage, U.K. brokers and associates pay no out-of-pocket expenses in premiums. NAR President-elect Pat Vredevoogd Combs summarized the problems with the comparison in her testimony before a U.S. House Financial Services subcommittee this fall, at a hearing about real estate competition.

The AEI-Brookings study entitled, "Bringing More Competition to Real Estate Brokerage" mischaracterizes the average real estate commissions in other countries.

• AEI-Brookings use a 2002 study comparing just real estate commission rates.  The authors of this 2002 report admit that they did not control for differences in services provided when concluding that U.S. commissions are high compared to other countries
• The study concluded, "While differences were observed, we saw most industrialized countries at 5% or less." NOT the 3.5% that AEI-Brookings reported in their study.
• Thus, with the US at about 5% and declining, we are on par with the average rates of other industrialized countries.

You can't compare the U.S. real estate commissions with U.K. estate agent commissions for the following reasons:

• In the U.K., estate agents are employees who receive a salary and benefits (health insurance is provided by gov't.).  Their employer receives the commission and typically uses a fraction of it to pay a bonus to the estate agent that found the buyer or in some cases to a team of employees.
• In the U.K., buyer's representation is not required, meaning the seller's company will keep the full commission and pay a bonus to the estate agent.
• In the U.K., there is no estate agent license that is equivalent of the U.S. real estate license, specifically no testing or educational requirements, etc.
• In the U.K. estate agents do not show homes or cover advertising costs.  If a seller wants to have his home marketed in the U.K., he has to pay a separate marketing/advertising fee.

Just this past March, BBC did an exposé on the estate agent business.  Over a period of 8 months, the BBC reporter discovered a litany of dishonesty, deception, deceit and outright criminality (issuance of fake passports).

• The reporter states, "The industry desperately needs better regulation and perhaps, like in the United States, estate agents should be required to have a qualification other than a sharp suit."
• The BBC solicited public input following the airing of their estate agent investigative report and one U.K. resident had this to say, "It's incredible that in Britain consumers have more rights when they buy a toaster than they do when they buy a house - probably the biggest purchase they will ever make. The industry needs reforming and regulating and fraudulent practices must be punished with prison sentences just like any other sort of fraud."