Compensation Structure of Buyer Brokers and Residential Real Estate Transactions
Liu, Peng; Weidel, Richard III
[Excerpt] Traditionally, commission rates were set by local boards of realtors. However, shortly after the inception of the Multiple Listing Service (“MLS”), the Federal Trade Commission began requiring brokers to disclose that commissions were “not set by any governing body and [were] negotiable between the Seller and the Listing Broker.” 1 Despite this disclosure requirement, the tradition of charging a standard commission percentage and equally splitting this commission between brokers continued. While a chorus of voices alleged collusion, the standard commission rate appears to have resulted from competitive market forces pushing rates to their lowest level.2 However, in the 1990s, as Limited Service Discount Brokers (“LSDB”) started taking market share from traditional brokers, the traditional brokers began to lower their commission rates to compete with these LSDB. The market driven commission rates dropped from the standard six percent to a range between four to five percent. Although most LSDB proved to be unprofitable and unsustainable, the lower commission rates have prevailed.
Cornell Real Estate Review
Volume & Issue:
brokerage; commission; compensation; structure; transactions; premium; density; broker fee; Limited Service Discount broker; LSDB; Cornell; real estate
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