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Sorry, home sellers: The 6% commission isn't going anywhere

Stephen Mihm, Bloomberg Opinion on

Published in Home and Consumer News

In fact, many of the local boards continued to endorse fixed schedules. In 1960, the California Real Estate Association formally adopted a 6% commission, leading state prosecutors to file a case against the group. Here, too, realtors agreed to abandon formal commissions schedules in favor of recommended rates. Little else changed.

In 1969 and 1970, the Justice Department began filing a new round of suits against real estate boards around the country, again alleging price fixing. After some resistance, boards dutifully agreed to stop recommending rates, leading many observers to predict that the real estate business was ripe for a pricing revolution.Two years later, though, the Washington Post reported that the 6% commission was alive and well. The paper contacted two dozen of the largest firms in the region and asked about commissions. Every single one of them said they were still charging 6%. Their replies, memorialized by the reporter, offer some sense of why this magic number remains the norm, even today.

“No reputable firm charges less,” one realtor claimed, while another noted that “the rule is six percent.” Several maintained it was the “standard,” and while a handful acknowledged that rates could be negotiated, one realtor threw cold water on the idea: “an agent won’t work as hard on a house for five percent as he will for six percent.”

More antitrust lawsuits followed later in the decade and into the next. Over and over, newspapers reported on these cases, predicting that the long-awaited collapse of the 6% commission was nigh. This was a bit like waiting for Godot: there was much talk about the prospect of lower commissions, but they never arrived.

Given the history, this was understandable: the entire real estate industry had been built to promote cooperation instead of competition, ensuring buyers’ and sellers’ agents work together. This ethos proved remarkably resilient in the 1980s and 1990s; indeed, it has remained alive and well in our own time, despite the advent of the internet, which promised to cut those pesky commissions down to size.


Now we’re being told that the latest, greatest court case truly spells the end of the standard realtor commission. This kind of naïve reporting perpetuates the fiction that the 6% commission is an official rate.

Instead, it’s something far more powerful and persistent: a deeply-held custom nurtured for close to a one hundred years among the members of the nation’s largest trade association. Good luck getting rid of it.

(Stephen Mihm, a professor of history at the University of Georgia, is coauthor of “Crisis Economics: A Crash Course in the Future of Finance.”)

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