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Brokerage firms accused of 'cartel-like' behavior

As consumers  become savvy in the ‘art of the deal' and using the Internet, more and more brokerage firms are teaming up to set prices and restrict service options,  a report by the Consumer Federation of America stated.
/ Source: The Associated Press

Many real estate brokerage firms band together to set prices, a consumer group said in a report released Monday.

The brokerage firms work together to maintain commissions charged home sellers at 6 percent to 7 percent, typically $24,000 for the sale of a $400,000 home, and to maintain control of multiple listing services of homes for sale, according to the report by Consumer Federation of America.

“Many traditional real estate brokerage firms, and their organizations, function as a cartel that tries to set prices and restrict service options,” said Stephen Brobeck, the federation’s executive director.

Roy DeLoach, senior vice president of government affairs for the National Association of Mortgage Brokers, called the report’s findings “a restating of the facts on how traditional real estate brokers are compensated.”

“It is at best a lesson for consumers on negotiating a better deal with real estate brokers,” he said in a statement. “We believe, with the various information avenues open to homebuyers such as the Internet, consumers are becoming more sophisticated in the ‘art of the deal.’”

At the same time, DeLoach said, the number of real estate brokers who charge a flat fee or a discounted commission continues to grow.

Smart tips for consumers
Consumer Federation said consumers can protect themselves by:

  • Negotiating more forcefully with brokers, and asking for oral and written disclosures of the party the broker represents. Brokers who function as “facilitators,” “transactional brokers” or “dual agents” are not allowed to represent the financial interests of clients.
  • Traditional brokers who work with both buyer and seller in a home sale nearly always function as facilitators even though consumers often believe they are functioning as fiduciary agents, the consumer group says.
  • If they are sellers, asking brokers who are fiduciary agents to reduce the standard commission of 6 percent to 7 percent by a percentage point, and brokers who are facilitators to cut it by at least 2 percentage points. Buyers should ask brokers if they would be willing to rebate one percentage point of their commission back to them.
  • Asking about potential conflicts of interest among brokers, such as promoting their own listings or those of their firm.

The report was based on information from real estate professionals, and from articles in industry publications and the general press, Consumer Federation said.