By Jane Bryant Quinn
Newsweek

July 18 issue - Will the Internet finally smash the real-estate cartel? Home prices have risen 40 percent in the past five years, yet most real-estate brokers still quote sales commissions at about 6 percent (some negotiate, if asked). The industry is using its political clout to hold down price-cutting. But consumers could win, now that prices are on the Web.

Brokers do business through the computerized Multiple Listing Service (MLS), where firms list the houses they have for sale. They work hard for their customers and know their neighborhoods. The trouble is, they trade with each other politely, at the cartel price. So a few clever (impolite!) brokers figured out how to sell homes cheaper by setting up Internet offices and letting you peep at MLS listings on your own. (These listings also go onto Realtor.com, but with less information.) A thousand flowers are starting to bloom:

Discount real-estate firms. If you're selling your house, a discounter can save you a ton of money. These brokers offer all the usual services and expertise. But instead of charging you 6 percent of the sales price, they take 4 percent or even 3 percent. That's a saving of $7,000 to $10,500 on a $350,000 house—a no-brainer, I'd say.

The granddaddy of the discounters is ZipRealty.com, in 10 states and the District of Columbia. Zip's participating local brokers charge about 1 percent less than the going rate. To attract home buyers to its site, Zip offers to rebate 20 percent of its commission. If you buy a $350,000 house, you'd get a $2,100 thank-you check.

The discounter Foxtons operates in New Jersey, southern Connecticut and New York, charging home sellers 3 percent. Brokers from other firms receive just 1 percent for finding a buyer. In pre-Internet days, they might have blackballed Foxtons right out of business. No more. If their clients find a Foxtons house they like on Realtor.com, the broker can't escape showing it. CEO Van Davis says that outside brokers are accounting for half his sales.

You can find discounters almost everywhere. Just enter the name of your city or county into a Web search engine, along with "real-estate broker," then "low commission," "3% commission" or "discount."

FSBO sites (pronounced "fiz-bo")—"for sale by owner." People selling their own homes account for roughly 15 to 20 percent of sales. You'll find pots of free how-to information on FSBO Web sites. For a fee, you can buy a FOR SALE sign, an 800-number service for taking calls and a listing on the FSBO's site, with pictures of your home. You can even buy a listing on the MLS, so shoppers everywhere can find you. But buyers have to call you directly. If you want a broker to bring you customers, you'll have to offer a commission.

The FSBO sites offer different services at varying prices. A package at ForSaleByOwner.com includes personal telephone consulting to guide you through the sale. Owners.com is affiliated with Cendant (Century 21, Coldwell Banker). If your house doesn't sell and you decide to switch to certain of its brokers, you'll get a $1,000 rebate on the commission. Owner.com (not affiliated with Owners.com) lists other FSBO sites.

Fee for service. These brokers offer a menu of services, each at its own price. If you're selling your own house, you might want help with paperwork after you've found a buyer, or you might want the broker to show your house, or you might want an MLS listing. You buy only the service you want. Two such franchises: HelpUSell.com and Assist2Sell.com.

Referrals and rebates. These sites link home shoppers with real-estate brokers. If you buy, the broker pays the site for the referral, which in turn rebates part of that money to you. At Realestate.com, the rebate ranges from $100 to $2,250, depending on the price of the house, and comes in the form of a Home Depot or American Express gift card.

Bidding sites. At HomeGain.com, you describe the property you want to sell or buy and ask brokers for proposals (including commission charges). A new site, HungryAgents.com, encourages brokers to bid aggressively for your business.

Unfortunately, some of you aren't allowed to use all these money-saving services. Your state's self-interested real-estate brokers are driving them out. Six states (Florida, Illinois, Iowa, Oklahoma, Texas and Utah) now curtail companies that offer discounts, according to Inman Real Estate News. Other states have stopped FSBO sites from helping you market your home through the MLS. A dozen state real-estate commissions are trying to regulate discounters out of existence. Kentucky bans rebates entirely—but, in a strike for consumers—it's being sued by the U.S. Department of Justice for restricting price competition. The National Association of Realtors was planning to set new MLS rules to let traditional brokers keep their listings off the discounters' sites. The Justice Department stopped that, too.

The higher-priced brokers will keep up the fight for their cartel, but the discounters have the wind at their backs, says Stephen Murray, editor of the industry newsletter Real Trends. Today they're just 2 percent of the market, but could grow to 12 percent by 2010. Hey, this is America—we're supposed to support price competition. That means brokers, too.

Reporter Associate: Temma Ehrenfeld
© 2006 Newsweek, Inc.