Web Sites Take Aim at Real Estate Commissions


April 8, 2006 — -- Roman Levkov thought for a moment that it must have been a trick: He listed his home in Freehold, N.J., through the online broker flatfeemlsdirect.com, which charged him a flat fee of $295 to include his home in the MLS, or multiple listing service -- a large database of property listings accessible to all realtors and consumers searching Web sites like realtor.com.

Within two days, his house went under contract.

"I just saved $10,000 on 3 percent [of the sale price], on the side of my broker," said Lefkov, beaming with pride at overcoming what some see as an inefficiency in the selling of homes. "Three percent from $358,000 is $10,000-something."

The businesses of buying a ticket, booking a hotel room and trading stocks have all been radically reshaped by the transparency and immediacy of the Internet. And now, a similar change may be coming to the most brick-and-mortar of brick-and-mortar businesses -- the buying and selling of homes.

Whether a house is worth $300,000 or $3 million, the traditional model includes the buying and selling agents splitting a commission ranging from 5 to 7 percent. So taking either the buying or selling agent out of the equation can mean serious cost savings.

For instance, a new site called buysiderealty.com has listings of all the properties in California, Illinois and Florida, and offers a once unthinkable incentive for buyers -- a 75 percent rebate on the buyer's commission.

It was enough to lure in Lisa Zimmerman of Chicago, a mother of four whose two-bedroom apartment seemed to shrink in direct proportion to the growth of her children.

"In the price range that I'm looking [at], I would end up getting a rebate of about $8,000," Zimmerman said.

The current wave of Internet entrepreneurs is just the most recent to try and disrupt the commission structure for real estate, according to Chris Mayer, the director of Milstein Real Estate Center at the Columbia University Business School.

"Cutting commissions has really been a continuing trend over the last 20 years or more," Mayer said. "But I think now is really the time this is coming to a head. Consumers want access to information that they feel they haven't had access to before -- and at the same time, costs of selling a house really have remained stubbornly high."

Mayer added that there can be drawbacks to going the low-frills route.

"Brokers do provide good professional advice," he said. "And when you operate in a market where you're not getting as much of that advice, I think you lose something. You have to trade that off against the cost savings."

There are laws in 15 states banning outright rebates for the buyers, and there are other states that have certain minimum requirements for what constitutes a legitimate selling agent.

But elsewhere, experts say people interested in pursuing the online discount route should be the type of person that does their own homework. After all, there won't be a realtor coming by with flyers for the front door, yard signs for the front lawn or baked cookies to help a seller's kitchen "show" well.

Hari Sreenivasan originally reported this story for "World News Tonight."