Byline: Steven Pearlstein

Washington Post business columnist Steven Pearlstein was online to discuss real estate commissions and listings. In his latest column , he writes that the current, convoluted arrangement misaligns the agents' incentives, stifles innovation and prevents efficient, competitive pricing..

A transcript follows.

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Richmond, VA: What is a REASONABLE commission to expect to pay now days? I live in the Richmond Metro area and homes sell rather easily. Why pay 18,000 for a $300,000 (which is very average in this area.) Also, do you recommend shopping for the best commission rate?

Steven Pearlstein: Every area is different. Up here in Washington, you can sometimes get the agents down to 5 percent on an expensive house. But my experience is that when you try to suggest something less, or a more creative structure with a base of 4 and some add-on incentives, they just won't talk to you. If you ask for a proposal from a brokerage, they tell you all about how great they are and their past successes, but never mention price. That is how the 6 percent conspiracy is maintained, and why shopping around is likely to be so unfruitful among the traditional agents who probably are, in fact, the best people to help you sell your house.

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Bristow, VA: Steven,

Thanks for finally saying what's needed to be said for a long time. Many in the real estate industry refuse to change, continue to overcharge for services rendered and real alternatives are needed.

I don't blame them though. If I could bag a $20k+ commission on a listing that sold in less than a week with minimal effort in this active market, I'd try to stave off competition too.

Rob Parker

Steven Pearlstein: Rob, By saying what you're saying, you can be sure you're about to get a blizzard of letters from angry real estate agents telling you that they really earn every penny they get. Just a warning.

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Seattle, WA: I would be interested to hear your opinion on a phenomenon I've witnessed a lot recently both here in Seattle and in D.C. It's the situation where an individual purchases a 'diamond in the rough' vintage bungalow, then does a lot of paint/cosmetic work, updates the kitchen in the cheapest way possible -while still including granite counters], and perhaps replaces the roof or heating unit.

Not a whole-house gut job, just paint, putty and a new kitchen and/or bath.

Then house goes on the market again within 4 months or so for $400K more. And it sells?!;

So, why do you think so many people overpay _so much_ for the pleasure of having someone else put in a cheap kitchen, paint the walls, and refinish the floors? I understand there is time crunch factor for busy buyers, but it strikes me as really irrational to pay about $250,000 for a result you could contract out for yourself at a cost of about $75,000.

Thoughts?

Steven Pearlstein: The wise-guy answer is: Have you ever DONE a kitchen and bath renovation? But you are right: we overpay for these things because we are irrational.

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KSR, VA: How long do you think the housing boom will last?

Steven Pearlstein: A bit longer, but not much, in hot markets like ours.

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Fairfax/Chantilly, VA: What do you think of FSBO (For Sale by Owner)? It seems that more and more of them are popping up around our area. Thanks!;

Steven Pearlstein: In hot markets, it is worth a try for a couple of weeks. Get a good real estate lawyer, though, to help you prepare the "offering documents" and handle the closing. You also have to consider whether you want to offer a selling broker's fee, and how to advertise its availability. Contrary to what the code of professional ethics calls for, agents are known to allow their own self-interest to color their view of their clients' interest.

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Silver Spring, MD: Could large banks or financial institutions eventually corner the market on real estate transactions?

Steven Pearlstein: Ah, this is the great fear of the realtors groups in lobbying against reforms of the closing process, which is rigged against consumers and ridiculously over-expensive. The world may be moving to a model where a single company handles all aspects of a transaction, from listing to closing to inspection and financing. Realtors want to be able to do that, but don't want banks to be able to do that. That's ridiculous. Either everyone should be able to offer a package, at a single price, or nobody should be able to.

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Arlington, VA: Houses in my neighborhood are still selling in less than a week with multiple offers and the selling prices are just under $500K. I do not want to pay full commission (6%) but I think I would benefit from a full service realtor... My question is, will listing agents be more likely to work with a seller on the commission rate knowing that inventory is still low, houses are still selling quickly, (and in most cases with multiple offers), and that a home owner can shop around for a listing agent to see who will be willing to work with them on the commission... or will most agents try to bully the home owner into a full price, 6% commission. Also, are commission rates paid part of the public record when the sales transaction is recorded with the County? Thank you.

Steven Pearlstein: I don't think commissions are on the county record, although they are on some forms filed with HUD.

On your other question, you'd think, in markets with tight inventory, full service agents would be willing to bargain on commissions. Again, a few are, particularly involving expensive properties, and in those cases you should be able to find a good one willing to go down to 5 percent. But remember, selling agents for one customers are also buying agents for another, so they may not be as desperate as you think. They have a lot at stake in maintaining the traditional price levels and disabusing consumers about the wisdom of bargaining on price. These are conversations they DON'T WANT TO HAVE.

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Arlington, VA: I'm a would-be first-time homebuyer and I'm perplexed by the DC marketplace. I finally decided to sign on with an agent thinking this would make things easier. Five unsuccessful offers later, I'm now told that houses are going for 10-15% over asking price.

If I had known that at first I might have not placed the three offers to begin with. Having read your article, I now wonder whether the disappointment was orchestrated to instill a sense of desperation that would make less desirable, slower-moving properties more appealing.

Steven Pearlstein: No, there may be an unwritten conspiracy among agents to prevent price negotiation over commissions, but the market for the actual property is not rigged. It reflects an excess of demand over supply in many price ranges.

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Washington, D.C.: I hope the realtor profession changes dramatically in the next few years. It astounds me that sellers' agents typically earn 3% of sale price, when sale prices are so high nowadays. On a million-dollar house -- not so unusual around here -- that's $30,000!; For what?? Putting together a brochure, sitting through a few open houses, helping sellers evaluate offers, and paying a few listing fees? I just don't think the work they put in, particularly when houses typically sell in a few weeks or less, is worth anywhere near that amount. No wonder so many people are trying to become agents.

Steven Pearlstein: Indeed. And with so many new agents, it is putting downward pressure on agent income, because a relatively fixed number of transactions has to be divided among a greater number of agents. But, interestingly, it isn't yet having a big effect on the price of the services (the commission rate), as economic theory would suggest, which raises the suspicion of a less than perfectly competitive market. To be sure, average commissions have come down from the 6 percent rate a decade ago to just over 5 percent today, nationally. But remember, during the same period, the price of real estate has probably doubled. So do the math: a 16 percent reduction in the commission rate, applied against sales prices that are 100 percent higher. Translated: A big increase in per transaction fees.

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