The scramble to keep your business

Kiplinger's Personal Finance Magazine, Oct, 1998 by Elizabeth Razzi

Big changes are coming in the way you buy and sell your home--partly because, unbelievable as it may seem, real estate brokers aren't profiting much from the current bull market in real estate. Star agents are pocketing most of the commissions and passing less on to their brokers, who have also been forced to invest heavily over the past few years in computers, voice mail, Web sites, digital cameras and other new technology.

Perhaps you're not inclined to shed a tear over brokers' weakened profits. But whether you're a buyer or a seller, you should be on the lookout for ways brokers are trying to shore them up. Some are giving up on trying to wrest more away from their agents and are looking to sellers for higher commissions. That affects buyers, too: If sellers have already committed to pay higher commissions, they may be a little less willing to bargain with buyers.

For example, one of the largest brokers in the country, Long & Foster Real Estate, based in Fairfax, Va., raised its commission from 6% to 7% earlier this year and added a $149per-deal transaction fee. Long & Foster executives emphasize that their commission is negotiable--about 30% of new listings are signed at 7%. Meanwhile, competing brokers can point to Long & Foster's higher rates to defend their own full commission of 6%. So, in effect, negotiations over commissions start at a higher level.

Laurie Moore-Moore, an editor of the industry-watching newsletter Real Trends, sees a commission hike as a way for brokers to "buy a little time" before the industry finds a new way of doing business. "We're going to see a lot of experimentation as brokers try to stay profitable," she says.

One prime arena for experimentation is the Internet, which allows brokers to offer enhanced services to buyers and sellers across the country. Realtors have posted more than one million listings on the Realtor.com Web site (www.realtor.com). Even for-sale-by-owner sales have a home on the Web (www.owners.com).

You can help yourself to information on neighborhood amenities, crime rates, school scores, mortgages and listings through Microsoft's new online foray into real estate, www.homeadvisor.com. It has fewer listings than Realtor.com but boasts a broad range of information, allowing you to search for listings, mortgages and neighborhood statistics. (Microsoft doesn't plan to include FSBO homes on its site.)

BROKER BOUTIOUES. A San Francisco brokerage, Pacific Union Real Estate Group, launched a new "information boutique" last spring that targets services to buyers in a specific neighborhood--in this case, the SOMA district (short for South of Market, a trendy loft area in the city). A key feature of the prototype service, called SOMA Living, is that all the agents are on salary. The real estate company still splits commissions with listing brokers--but the company pays salaries to SOMA Living agents. That reduces the incentive for the agent to nudge you toward a higher-priced home that would boost the agent's commission. Because SOMA Living focuses on buyers, it refers sellers to other Pacific Union brokers.

SOMA Living delivers real estate services through its neighborhood store and via the Internet. If the prototype catches on, its business plan calls for branching out into Chicago and the New York City area over the next two years. Ultimately, the company plans to expand to 400 stores nationwide over the next eight years. "I can remember when the home-buying process was a happy time," says Karl Sopke, president of Pacific Union's Real Estate Group. "Now it's a war. You spend more money than you thought you would. More people than you ever dreamt of come into the transaction. And, at the end, you thank God it's over." Sopke hopes to restore some fun to the home-buying process.

At SOMA Living, buyers can wander into the store and call up information on computer terminals about recent sales prices, plus information on new construction and resale homes being sold without an agent. You won't be approached by an agent, only by a receptionist, who can help you search for information on recent sales prices and neighborhood statistics and amenities.

GETTING SERIOUS. When you decide it's time to get serious, you can register as an "active buyer." Then you'll be asked to sign a commitment to work only with SOMA Living when you're shopping in the South of Market district. You'll be assigned to a licensed agent who can show you properties, and you'll get your own password to SOMA Living's Web site, where you can check on new listings and communicate with your agent. Your agent can take you into the video conference room at SOMA Living's storefront, where you can fill out a loan application through an audiovisual link with the loan officer.

If you decide to make an offer on a home, you'll be handed over to a broker who specializes in negotiating the deal for you. Because the negotiator is paid a salary, he or she will get a paycheck even if the deal falls through. That may make the negotiator fight harder for you and be more willing to go along with your strategy if you play the ultimate bargaining chip--walking away from the deal.