Embattled real estate agents play hardball

Depending on how you feel about real estate agents, claims about their obsolescence can seem either flat wrong or just early. What is far less dubious is the fact that traditional agents have an increasingly challenging battle to retain their stronghold on local listings as technological and legal threats continue to emerge.

The news is full of stories about consumers such as Stacey Tashjian, who saved thousands of dollars by eschewing traditional real estate agents. In early 2005, Tashjian plunked down just $600 to list her $580,000 home on www.ForSaleByOwner.com and her local multiple listing service, or MLS. When she sold it to a buyer who was similarly sans agent, she saved herself $34,000 in commissions.

“I’m not putting down Realtors,” Tashjian says. “But I don’t want to pay them $30,000 to walk people through my house. . . . I’ve always felt that I can sell my own house.”

Technological threats

Catering to Tashjian and consumers like her are a long list of companies and Web sites that allow consumers to do everything from obtain free estimates of their homes’ worth (long a reliable lead generator for agents) to buy and sell homes without setting foot in a realty office. In December, Zillow.com, best known for providing online house-value “zestimates,” began allowing consumers and pros to list homes on its site for free. Tashjian and consumers everywhere can now:

Choose and pay a la carte only for the services they need, such as listing their home on a Web site or MLS, or the preparation of closing paperwork.

Use a discount broker, who takes a lower commission and, in some cases, pays rebates to buyers.

Go it alone, using free listing sites such as Zillow, Craigslist and Microsoft’s Expo to help market their homes. (Microsoft is the publisher of MSN Real Estate.)

Largely because of the above options, consumers may now have better luck negotiating a lower commission with a traditional agent.

New Jersey broker-agent Val Nunnenkamp says some homeowners have tried pressuring him into lowering the total commission paid out to 3%. But, he says, there’s only so low he will agree to go.

“You can’t go to a Ritz-Carlton and stay there for $89 a night,” he says. “We have high overhead.”

More than 67% of real estate agents said the biggest impact on their commission rates last year came from discounters, according to a poll of 1,000 agents released in September by Inman News, a real estate news service. According to Bank of America estimates, the average U.S. real estate commission slid from 6% in 2000 to 5% last year.

Video: Should you negotiate commissions?

Part of the problem, Nunnenkamp says, is there are twice as many agents pounding the streets, thanks in part to the Internet boom. That, he says, has helped pull down income at his company, forcing the exodus of 20 of the firm’s 120 agents. Nunnenkamp ultimately decided to shave half of a percentage point off his commissions to help preserve business.

Discounters ring it in

Publicly traded ZipRealty, an Emeryville, Calif., discount brokerage that pays buyers a rebate, has seen its business more than double in recent years. It’s now the 31st-largest brokerage company in the country, according to real estate research firm Real Trends, with 1,700 agents in 20 markets.

“We have done in five years what it has taken some other companies 70 or 80 years to do,” says Patrick Lashinsky, ZipRealty’s president.

Between 2002 and 2005, the share of sales involving nontraditional brokers rose from 2% to 16% in a consumer survey conducted by Real Trends (before falling back some in 2006). In that same period, flat-fee real estate firm Help-U-Sell opened 600 franchises around the country. And a new trade association representing some fee-for-service brokers rose from 250 to 1,400 members between 2001 and 2004, according to a Consumer Federation report.

But it’s the free services that have real estate agents especially worried right now, says discounter Lashinksy. “All of a sudden, we are not the pariah of the industry anymore. Now everyone is worried about the Zillows of the world.”

Discounters face boycotts

Letting go hasn’t been easy for real estate agents. In many areas, agents have refused to show their clients properties listed by discount rivals. Jude Thomas Smith, for instance, the broker-owner of SharpMLS.com, a real estate company that does business in Arkansas, Louisiana and Mississippi, says he has had agents tell his clients that no real estate agent in the area will show their house if it is listed with Smith’s company. Sure enough, he says, many boycott his broker open houses.

Chris Nye, the president of MLS4owners.com in Washington state, says he has experienced this type of discrimination from other agents. At a Consumer Federation news conference in December, he said that local brokerages had threatened merchants and newspapers that agreed to do business with him. This kind of protectionism in the real estate industry is nothing new, says Pat Roach, the deputy assistant director of the Federal Trade Commission’s Bureau of Competition. As far back as the 1980s, when clients had to go to an agent’s office to flip through binders of listings, the FTC found cases of brokerage groups barring listings from brokers who dared to discount.

Recently, the FTC, the U.S. Department of Justice and a host of real estate attorneys have stepped in to help these high-tech real estate firms bust through rules designed to keep them out of the market and off local MLSs.