Real estate: Location, location, commission

By GILBERT MOHTES-CHAN

In today's rugged economy, location can be a key driver in real estate commission rates throughout California, say agents and brokers across the state.

Commissions can run up to 7 percent in regions saddled with foreclosures and sales of bank-owned homes, for example, while a more typical range in the luxury market of Pacific Palisades is 5 percent to 6 percent, and in some rural areas agents report commission rates on the order of 5 percent, said agents and brokers interviewed for this article.

Those total commissions rates -- the percentage that brokers earn based on the selling price of a home -- are typically split between a broker representing a seller and a broker representing a buyer in each transaction.

And while there may be regional norms, specific rates can vary depending on the brokerage company and individual agent -- also, some brokers offer alternative fee structures that are not based on traditional percentage-based commission rates.

Generally, agents and brokers said they don't foresee any dramatic changes to commission structures in the coming months, though real estate market conditions can influence commission rates.

Agents report that real estate commission rates tend to be on the high end in Stockton, Calif., the nation's leader in foreclosures in 2008, according to Irvine-based RealtyTrac Inc. One in 11 homes in the Stockton area had at least one foreclosure filing last year, RealtyTrac reported.

"Some are offering 7 percent commissions with the buyer's agent getting 4 percent," said Terri Milton, office manager of Darrell Isaacs Team Professionals in Stockton. These days, nearly all of Isaacs' deals are with companies handing REO sales. "Foreclosures impact commissions. Our sellers are offering competitive commissions," Milton said.

In Southern California, broker Drake Goosby said commissions in the western side of Los Angeles, including Malibu and Pacific Palisades, "are between 5 and 6 percent. If you really want to sell the property, they go up to 6 percent. Rarely is it over six," said Goosby, of Santa Monica-based Goosby Valuation. Condominiums make up the bulk of foreclosure sales there, he said.

The past year saw the statewide median home price slide 41.5 percent to $281,100 in December from the year-ago period, according to the California Association of Realtors. Home sales surged 84.9 percent during that same time.

With business tough, some agents are supplementing their income by handling leases or doing broker price opinions for lenders. Others are finding part-time jobs outside of real estate or even calling it quits.

"A lot of real estate agents are dropping out of the business. Our sales are up, but prices are way down. (Our income is) way low from what we are used to," said Dave Thurman, of Dave Thurman and Associates in Stockton.

Joyce Middleton, a broker at the House of Realty in Redding, said some agents are cutting back hours and working real estate only part time. Commissions have settled in around 5 percent in her rural Northern California region. "People will ask you to take 5 percent," she said.

On the extreme, Middleton said, a financially troubled condominium project in town is offering seller's agents a 0.75 percent commission and the buyer's agent a flat $2,000 cash payment on each deal. Meanwhile, lenders with foreclosed properties are offering 4 percent total commissions.

"They (lenders) try to dictate a 4 percent fee. We fight that fight," said D.J. Grubb, president and owner of the Grubb Co. in Oakland. "The agent has to be sophisticated enough to negotiate that commission (to 5 percent). You have to prove you can earn your fee."

In the East Bay market, overall commissions have trended upward. "The seller is willing to pay more -- 6 percent -- but the expectation (of the agent) is higher," Grubb said.

Grubb said broker splits with agents -- agents and brokers share the commission income on each side of a transaction -- "are becoming more conservative." He echoed other sentiments that agents are seeing fees increase at their offices -- from charges for long-distance telephone calls to photocopies.

In the long run, Grubb said these fee changes could be short-sided. "It will kill morale. That will take a company down rapidly."

Gilbert Mohtes-Chan is a freelance writer.

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