BREAKING THE BROKERS

When Larry and Jean Weed of Sparks, Nev., decided to sell their home, they invited some real-estate agents by for a visit. Most offered to sell the house the old-fashioned way, by listing it in the local brokers' database and charging a 6 percent commission (worth $16,800 on the Weeds' $280,000 home). Then the couple met an agent from Assist-2-Sell, a "flat-fee" brokerage that charges just $2,995 to sell a home. In their area, as in much of the country, "it's a sellers' market--houses are going like hot cakes," Jean says. So they decided to try the cheaper approach. Eight days after the for sale sign went up, they had a buyer. By using Assist-2-Sell, they walked out of their closing with an extra $13,795. As she packed boxes last week, Jean wondered if regular agents might become relics. "I don't foresee ever using one again," she says.

It's been a generation since Charles Schwab bullied his way into the stock-brokerage business by cutting commissions. It's been nearly a decade since Web sites like Edmunds, Priceline and Travelocity helped drive down middlemen's profits on minivans and Caribbean cruises. Now a growing number of firms are moving to serve home sellers who balk at paying a big commission. And even among home sellers who use a traditional agent, many are growing more price-conscious and haggling with brokers to reduce their rates. The average real-estate commission was 5.12 percent last year, down a full percentage point over the past decade, says Steve Murray of Real Trends.

Folks like the Weeds remain rare: the vast majority of home sellers still use full-commission agents. But alternatives are emerging--and many observers are surprised they didn't gain in popularity even sooner. The industry spent much of the 1990s worrying that brokers would be dot-commed into oblivion. "In 1999, if Bill Gates had walked into a [real-estate agents'] convention, he'd have been dismembered," says John Tuccillo, an industry consultant. But predictions that Web sites would replace brokers have proved dead wrong. Today the industry is facing pressure from a very different set of problems: rising home prices and a glut of agents. The economics are easy to understand. As home values escalate, home sellers are balking at the usual 6 or 7 percent commission--a fee of more than $10,000 on the median-priced U.S. home. "Why pay so much money if my house is going to sell in a week?" sellers ask, especially as more agents are scrambling for listings. The biggest squeeze is occurring in markets where home prices top $350,000. Along with competition from newbie agents, the pressure has limited brokers' earnings: half earned less than $52,500 in 2002.

Another threat comes as a small but growing number of homeowners try new ways to sell a home. The two largest "flat-fee" brokerages, Help-U-Sell and Assist-2-Sell, are well over a decade old, but in the past year their networks of franchises have exploded; together they now have nearly 900 offices nationwide. And even some established brokerages are experimenting with "a la carte" pricing, where instead of commissions, sellers pay an agent separate, set fees to price a home, hold an open house or write the contract. Says Murray: "There are a lot of new entrants into this business, and they're not all playing by the existing rules."

Some agents have learned to love the emerging playing field. Boston broker John Ford uses Craigslist.org, a free Web site now operating in 32 U.S. cities, to advertise his listings. He's cut his newspaper advertising bill by more than $100,000 a year--and by using the Web, he says, he's reaching more under-35 buyers who generally don't read newspapers. To gain listings, he's cut his commissions to 4 percent, but since home prices are rising and his costs are falling, he's more than breaking even. Barbara West, a broker in Quechee, Vt., has a client who's trying to sell her home on eBay; if she succeeds, West's commission will be cut in half. But West doesn't feel threatened. Like most brokers, she loves the Internet because it allows buyers to study photos of listings at home and weed out the losers, limiting the time she spends schlepping from house to house. And even those homeowners who gripe about agents' high fees usually call one when it's time to sell their own home, she says. Why? They're scared of listing it for sale by owner by time constraints, uncertainties over pricing or paperwork or the fear that agents will steer buyers away. Nationally, "FSBOs" account for fewer than one in five sales and don't appear to have grown much during the boom. As for her eBay client, the online listing has attracted one visit from a prospective buyer. West has brought by 60.

Still, thanks to a new breed of brokerages, do-it-yourselfers say it's becoming far easier to sell a home. When Gus Treewater decided to sell his three-bedroom San Francisco condo, he spent $3,000 to create brochures and found a broker who charges $995 to handle the paperwork. Like many "broker-assisted" sellers, Treewater will still pay a 2.5 percent commission of the $890,000 price to an agent who brings him a buyer, but he expects to save $25,000 by doing legwork himself. "All our neighbors are watching with interest, saying 'Wow, can we really do this?' " he says.

For buyers, sellers and agents, the big question is whether this wave of cost cutting and experimentation will survive when the market finally slumps. Then, skeptics say, many of the low-cost brokerages will fold and homeowners will happily revert to paying big fees to experienced pros who can move a home quickly. For better or worse, the market shows little sign of doing that flip-flop any time soon. If the tepid job market helps keep interest rates low the rest of this year, there's a chance home sales could top last year's record. Economist David Lereah of the National Association of Realtors expects prices to rise by merely 4 to 5 percent this year, off slightly from the blistering pace of 2000 to 2003. But as long as those numbers are rising, some sellers will look for alternatives. "People are tired of paying higher and higher commissions just because houses are going up and up in value," says Dale Eads of Abana Realty in Birmingham, Ala., who converted to flat-fee selling three months ago. If more brokers follow his lead, today's small band of rebel agents may someday be an army.