Daily Real Estate News  |  November 7, 2006  |   Real Estate Commission Debate Heats Up
Real estate brokers who base their commissions on home price is "a primary reason why such fees may be inflated by more than $30 billion annually," argues lawyer Mark S. Nadel in a paper published by the AEI-Brookings Joint Center for Regulatory Studies.

"Real estate broker commissions are strangely unrelated to either the quantity or quality of the service rendered or even to the value provided," Nadel says. "Rather, this fee has been based solely on the price of the home."

Setting fees on home price is akin to tax preparers' setting their fees as a flat percentage of a client's gross income, no matter how difficult the return was to prepare or how much their efforts saved the taxpayer, Nadel says.

"Oddly, not only is there no evidence that it is any more costly to sell higher-priced homes than median-priced properties, but it is possible that the opposite may be true," he says. "Furthermore, the straight-percentage-fee formula creates little incentive for real estate agents to provide home buyers or sellers with additional value."

The NATIONAL ASSOCIATION OF REALTORSŪ does not favor one business model over the other in compensation, says spokeswoman Stephanie Singer.

"The association encourages innovation and competition in real estate brokerage, including different business models like fee-for-service," Singer says.

— The Philadelphia Inquirer, Alan J. Heavens (11/05/2006)