The $100 billion in hefty commissions that real estate agents charge consumers each year are hidden and poorly understood by consumers, according to a report by the Consumer Federation of America (CFA).

Moreover, real estate agents make it difficult for consumers to negotiate commissions by making it difficult for consumers to understand what they're being charged, according to a research report released by the CFA entitled “Hidden Real Estate Commissions: Consumer Costs and Improved Transparency.”

The report found that real estate agents in the U.S. don't advertise their commissions, don't disclose them on their websites or in response to phone inquiries, and are usually slow to provide them when asked about them by clients.

“The reluctance of traditional real estate agents and firms to provide information about commission levels helps explain why there is so little price competition in the industry,” Stephen Brobeck, a CFA senior fellow, said in a release. 

“It also helps explain why most consumers, even recent home buyers and sellers, do not know that nearly all commissions range between five and six percent,” Brobeck added.

The industry restricts the ability of buyers to learn what portion of the commission—or "splits," as they're called in the industry—their buyer agents receive, the CFA said.

Price opaqueness is costing consumers, big time, the report said. In general, agents face little pressure to reduce commissions that represent a relatively large consumer expenditure—usually $15,000 to $18,000 on the sale of a $300,000 home, for example. Sellers pay this commission but, according to CFA conversations with 200 agents in 20 cities, if the sellers inquire about its level, agents counter with the following tactics:

• If the seller offers a split to buyer agents that is below the typical local level, usually 2.5% or 3%, these agents are less likely to show the home.
• Most listing agents (73%) refused to negotiate down their own portion of the commission.

When buyers ask their agents about commissions, they are typically told that the commission is paid by the seller, so buyers do not inquire further. Nearly all local multiple listing services (MLSs) restrict buyer access to information about the commission split to the buyer agent, CFA found. This lack of information, according to the report, potentially disadvantages buyers in two ways:

• If buyers were able to negotiate down the commission split, sellers would be more willing to lower the sale price of the home (without a loss of net income).
• Buyers who do not have access to information about commission splits are vulnerable to be steered away from low-commission properties by buyer agents.

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