US Realty Fees Higher Than Other Nations

America's an expensive place to sell a house, with average realty commissions running 45 percent more than average fees charged in other developed countries, according to a new report. I

t's time to shake up the $60 billion a year realty business by letting banks have a shot at it, concluded analysts at the AEI-Brookings Joint Center for Regulatory Studies in Washington, D.C.

Since the U.S. housing sector started booming in 1991, the average realty sales commission has fallen from 6.1 percent to 5.1 percent, but the dollars collected have soared, according to the report, "Paying Less for Real Estate Brokerage: What Can Make it Happen?"

Realty commission revenue has outpaced inflation -- 51 percent compared with 39 percent -- from 1991 to 2004, they found.

"During that period, housing price increases have outpaced inflation by 55 percent," wrote authors Robert W. Hahn, Robert E. Litan and Jesse Gurman. American home sellers paid an average of 5.1 percent of sale price in realty brokerage commissions last year -- well above the 3.5 percent average in other developed countries.

While foreign realty fees may reflect fewer services, the stark differences "argue for more scrutiny and study of the U.S. industry," reported the AEI-Brookings Joint Center for Regulatory Studies in Washington.

Their recommendations:

-- Remove the barriers to new, less expensive types of brokers that the industry and regulators have put in place.

-- Authorize banks to enter the realty brokerage business.

Not surprisingly, the National Association of Realtors greeted the study with disfavor Wednesday, while the American Bankers Association reacted with delight. The two groups have been locked in a lobbying war for the past six years on the issue.

"The real estate industry is one of the most competitive, if not the most competitive industry in the United States," said Lawrence Yun, economist with the National Association of Realtors. "There are over 100,000 real estate companies out there and in any year, there are many entries and exits."

While new business models don't always get a warm reception among traditionalists, Yun said, "some are having success and gaining market share."

Average realty broker commission rates haven't dropped more because brokering a house sale involves a complex array of professional services, Yun said.

If researchers are so worried about abuses of power, the economist said, the last thing they should bless is big banks handling both house sale and financing.

"The banking industry is much more concentrated than the real estate industry," Y un said. "It would be an unlevel playing field."

Realtors have been using that argument during their six-year fight in Congress to keep bankers out of the realty brokerage business, while using their own market clout to stifle smaller competitors, contended Laura Fisher, public relations manager for the American Bankers Association.

"There's so much innovation out there, so many people trying to offer competition. It's just that Realtors keep pushing it down," Fisher said. "Their message comes across loud and clear: they'll do anything to discourage competition."