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Real estate commissions no longer ironclad at 6%

Redfin real estate broker Shari Patron, left, with

Redfin real estate broker Shari Patron, left, with fellow broker Peggy Papazaharias, during an open house on Saturday, March 5, 2016, in Harbor Green Estates in Massapequa. Redfin has a low commission rate, only 1.5%. Credit: Chuck Fadely

Long Islanders selling their homes say the traditional 6 percent real estate commission is not as ironclad as it used to be.

Now, some real estate agents charge commissions of 5 percent or 5.5 percent, or even less, said local homeowners who sold properties ranging in price from less than $300,000 to nearly $1 million. A few homeowners said they paid as little as 4 percent.

For those who last hired a real estate agent decades ago, when rates of 6 percent or more were standard, the wider range of commission rates comes as a pleasant surprise, allowing homeowners to walk away from the closing with a slightly fatter wallet.

“I think [rates] used to be higher, in the ’80s and ’90s,” said Carol Scibelli, a comedy writer and author who sold her waterfront home in Merrick in 2014, and also has owned property in New York City.

Now, she said, “it’s like the jewelry store — you don’t just say, ‘OK, I’ll pay that price.’ ” For one transaction, Scibelli said she negotiated a 5 percent commission.

Long Island is not the only place where real estate commissions are on the decline. Nationally, average commission rates have fallen from 6.1 percent in 1991 to 5.18 percent in 2014, according to Colorado-based data company Real Trends.

And rates fell to even lower levels during the housing boom, dipping as low as 5.02 percent in 2005, Real Trends figures show.

Rates typically drop when there are fewer homes listed for sale, compared with the number of agents and brokers, said Steve Murray, president of Real Trends. When the housing market heated up, many people rushed to get real estate licenses to get in on the action.

When there are too many real estate agents for the number of homes for sale, agents “compete more aggressively to get listings, and one of the ways they compete is on the price of the service,” Murray said.

On Long Island, that competition has actually eased over the past five years. Last year, the Island had an average of 1.44 agents and brokers for each home listing, according to figures from the Multiple Listing Service of Long Island and the state licensing agency. In 2010, agents and brokers had to compete more for business, since there were 1.6 agents and brokers for each listing.

If Murray’s analysis holds true on Long Island, that trend would have caused commission rates to rise.

Indeed, several local agents said rates fell to a low point when the housing market reached a feverish pitch from 2005 to 2007, but in recent years they have made a partial recovery.

Rates “took a significant drop in 2005, 2006, when it was at the height of the market and everything was crazy,” said Tom Gallagher, co-owner of East Meadow-based Century 21 American Homes. Since then, he said, “commissions stabilized.”

Most agents declined to discuss their exact rates, saying they must take care not to violate federal laws that prohibit price-fixing. The National Association of Realtors does not track rates.

A few local agents said rates tend to hover around 5 percent to 6 percent. Rising home prices have contributed to the decrease in rates since the 1990s, some said.

The commission typically gets split between the seller’s and buyer’s brokerages. If a home sells for $300,000 and the seller pays a 6 percent commission divided equally, each brokerage receives $9,000.

“A good Realtor who is a good negotiator will generally attract a buyer at the highest possible value for the property, which makes a substantial difference,” said John Fitzgerald, president of Hauppauge-based Realty Connect USA. “You might save a point with the broker [commission] but lose three points on the [sale price] of the property.”

Real estate agents also earn their commissions by offering insights into local markets, analyzing comparable sales and helping buyers and sellers avoid pitfalls, agents say. In addition, agents must share their earnings with brokerages.

“If you do a good job for the homeowner and you bring them the price they wanted, you deserve the commission,” said Patricia McDonnell, owner of Lido Beach Realty.

To be sure, home sellers say an agent’s skill and personality are the most important factors.

When Arjune Singh and his wife, Melissa, decided to sell their three-bedroom home in Valley Stream, they interviewed several agents. They hired Peggy Papazaharias, a local agent with Seattle-based national discount brokerage Redfin. The company charges sellers 1.5 percent for the listing agent, plus an additional share — typically 3 percent — to compensate the buyer’s agent.

The discounted commission “wasn’t actually a factor,” said Singh, a 37-year-old information technology executive and father of two. The family’s home, listed for $399,000, recently went into contract. Rather, Singh said, it was Papazaharias’ “more relaxed, more easygoing” style and his confidence that she would do a good job representing his interests: “It was really just the full experience with her.”

Average real estate commission rates in the U.S.

1991: 6.1%

2014: 5.18%

Source: Real Trends

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