The Rise And Fall Of The 6-Percent Commission?

Redfin and ZipRealty are challenging traditional real estate companies by using technology to reduce costs and to save time for their brokers. Here's how it works: "Agents don’t find and recommend homes â€" customers do that on their own, using Internet listings â€" and that enables agents to charge less for the services they do provide, chiefly handling the paperwork and negotiations." And perhaps the most important caveat is that it gives two-thirds of its sales commission (which is usually 3 percent of the sale price) to its customers.

The challenge that Redfin and other similar operations face is the wrath from traditional real estate who feel threatened to the notion of reducing the 6-percent commission. "In many cities, real estate agents have tried to restrict access to M.L.S. information or to limit its use on the database. Some have asked state legislatures to pass laws forcing brokers to offer certain levels of service."

Compounding the debate about 6-percent commissions is new research by economists. In particular, one economist suggests that the pricing system that is in place needs overhauling. "'It's a case where nobody wins,' Chang-Tai Hsieh, an associate professor of economics at the University of California, Berkeley, said of the current system. Mr. Hsieh, who has studied real estate commissions, said that they did not vary much from 6 percent and did not generally change in good times or bad. He said it was a form of price fixing, but an odd one. 'Consumers pay a lot of money, and even the people who do the price fixing don’t win,” he said. “So it is a colossal waste.'"