The Triangle Business Journal
October 25, 2004
Residential Fee Agreement Rattles Industry
10/24/2005
Fonville Morisey Realty is asking other agencies to sign agreements stipulating that Fonville Morisey will receive a guaranteed fee of up to 3 percent when one of its agents represents a buyer.
The move by the Triangle's second largest residential real estate firm has rankled some competitors and raised questions about whether the proposal is legal. The North Carolina Real Estate Commission has received complaints, which it has forwarded to the North Carolina Attorney General's Office.
Residential real estate fees on the sale of a home generally are 6 percent, which is split between the selling agency and the buying agency. The seller's side traditionally takes 3.6 percent, with the buyer's side getting 2.4 percent.
Increasingly, firms representing sellers - who pay the fee - are offering lower rates, say 5 percent. That's resulting in buyer agencies accepting a lower percentage payout when they match their buyer with the listing agent's seller.
Fonville Morisey is asking agencies to assure that any time the agency brings a buyer to the table it receive a guaranteed fee. The agency is suggesting that fee be set at 3 percent, which would be an increase from the nowtypical 2.4 percent.
Officials at Raleigh-based Fonville Morisey say their offer is simply an attempt to speed the sale of homes listed with the firm by sweetening buyers' agent fees and making listing agents work more efficiently.
"It's not as simple as it sounds," says Hal Perry, one of the owners of Fonville Morisey competitor ReMax United.
Some observers worry that if such agreements become widely adopted at the richer 3 percent rate, the shift would drive up consumer costs for selling a home beyond the generally accepted 6 percent, as listing agents react and boost their take.
Fonville Morisey, which employs 600 agents and controls about 17 percent of the Triangle's resale home listings, won't raise its listing fees even if it makes bigger payouts to buyers' agents and other brokers, says John Hawkins, the agency's general manager.
Hawkins says his firm will recoup lost dollars by selling homes faster.
Complaints mount
Fonville's effort is sending ripples of debate and some dissension through the residential real estate community. The North Carolina Real Estate Commission by Oct. 19 had fielded 20 to 25 phone calls and several faxes about the proposal.
Some question the legality of the concept, says Blackwell Brogden, chief deputy legal counsel at the state commission. Others asked what action the commission would take. "There is nothing we can do about what Fonville has proposed in that letter," Brogden says. "It's not within our jurisdiction."
The commission has directed questions and comments about the fee agreement to the North Carolina Attorney General's Office, which is reviewing the information. "We have not opened an investigation at this point," says Noelle Talley, a spokeswoman for the AG's office.
Hawkins says Fonville will clarify one portion of the offer - how it plans to handle firms that don't sign
reciprocal agreements. He says those firms would be paid whatever percentage they earn now from Fonville.
According to Fonville's letter, those that don't sign on would see their agents paid 2.4 percent - beginning on Nov. 1 - when bringing a buyer to a Fonville listing. Several hundred agency owners have accepted Fonville's offer, Hawkins says, but he would not specify which firms were cooperating.
"We are strongly considering it," says Phyllis York Brookshire, manager of York Simpson Underwood, which ranks fifth among the Triangle's largest real estate agencies. One item at issue in the YSU deliberations is how high to set the mutual fee if the firm does sign an agreement, Brookshire says. YSU also is mulling whether to float its own reciprocal offer to area agencies.
Not signing up
ReMax United is passing on the offer for now, Perry says. The firm ranks third among the Triangle's top agencies. Perry says that under the Fonville agreement, his company's 340 agents would lose price-setting flexibility when listing homes for sale.
And he worries that listing agents, who are used to taking a higher percentage - 3.4 percent of a 6 percent fee - would balk at an even split and raise list prices to 7 percent. "We don't think the market can bear it right now," Perry says.
Officials with Howard, Perry and Walston, the region's largest firm, did not return requests for comment.
Bobby Wieland, president of Wieland Properties, sees the Fonville offer as an attempt to stem a loss of market share to smaller brokerages and firms that attract sellers by offering reduced fees. Wieland's company charges sellers 3.9 percent rather than 6 percent, and he opted not to sign the Fonville agreement.
Fonville was the only firm among the top 10 agencies that reported to Triangle Business Journal a decline in sales between 2002 and 2003. Fonville reported that its sales slipped from $1.8 billion in 2002 to $1.7 billion last year. Hawkins says he expects the firm to ring up $2 billion in sales this year.
Glenn Wallace, the owner of the real estate agency My Dog Tess, rejected the offer and sent a copy of the letter to the state Attorney General's Office.
"Fonville is using its position as a major player in the market to push small firms around" Wallace says. Agreeing to a 3 percent payout would put his firm at a disadvantage when representing a seller who isn't willing to swallow traditional fees.
Independent agent Erick Umstead also refused the Fonville offer. "When I got the letter, I wasn't comfortable with it," says Umstead, who runs Umstead Realty. "I don't really think that brokers should be getting together to set their schedules."
Kim Nilsen
