Few consumers really know real estateOnly one-quarter even know commissions are negotiable, analysis finds
WASHINGTON (MarketWatch) -- Few consumers understand fundamentals of the real estate industry and don't know that they can negotiate better prices for basic services, according to an analysis released Monday from a consumer advocacy group.
The new analysis indicates that about one-third of respondents to a survey, which was performed last year for AARP, knew that the local multiple listing service is the most complete source of information about homes for sale. Only about one-quarter of respondents knew that they can negotiate broker commissions.
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"Home sellers and buyers who think they understand a complicated industry, yet in fact do not, are at a disadvantage in obtaining effective representation, reasonable commissions, adequate redress and, for buyers, complete information about listings," said Stephen Brobeck, executive director of the Consumer Federation of America.
Respondents did not fully understand the way the industry works because they use its services infrequently and the services are extremely complicated, according to CFA. Brobeck suggested that state commissions regulating real estate should "more energetically" inform potential buyers and sellers about services.
Also, agents should be required at their first meeting with a client to hand over a brochure -- to be reviewed by the Federal Trade Commission, consumer groups and industry professionals -- that would fully explain the way the real estate industry services work, Brobeck said.
The U.S. Dept. of Housing and Urban Development, which oversees much of the realty transaction under the auspices of the Real Estate Settlement and Procedures Act, has been seeking for several years to update archaic rules and simplify disclosure and closing paperwork. But those efforts have stalled amid political and industry bickering.
The government thinks that competition in the real estate brokerage industry is hindered, and consumers would likely benefit from knowing more about options in brokerage services and fees, according to an April report from the FTC and the Department of Justice. See full report.
It's also important for new brokerage models such as discount full-service brokers and virtual-office Internet brokers to be able to compete -- an incentive for regulators and lawmakers to consider rolling back rules that limit consumer choice, according to the report.
David Berenbaum, executive vice president with the National Community Reinvestment Coalition, said it's important for real estate professionals to make their roles clear to consumers. For example, agents and firms should make it clear whether they are representing the buyer or seller or both.
"Purchasing a home is the single most important financial transaction of your lifetime, and most people are ill prepared today for that transaction," Berenbaum said. "We need to ensure that the laws and the disclosure requirements are very clear and actively enforced."
Other interesting data from the CFA's analysis:
* 36% of respondents said they know "a lot" or "a fair amount" about real estate services. That percentage increased to 58% among respondents who had used services in the prior five years.
* 68% viewed agents/brokers favorably
* 63% said buyer access to local MLS should require a fee, but no exclusive agreement
* 67% see a potential conflict of interest when seller and buyer agents are at the same company
Ruth Mantell is a MarketWatch reporter based in Washington.