Survey: Consumers Don't Understand Real Estate Fundamentals

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When buying or selling real estate, and working with professionals in the industry, it’s important to understand the business so that you can get the best bang for your buck and feel confident with about your transaction.
However, according to a recent analysis of survey data collected in June 2006 for AARP, most consumers admit to not understanding the fundamentals of the real estate industry. And this can spell trouble.
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When buying or selling real estate, and working with professionals in the industry, it’s important to understand the business so that you can get the best bang for your buck and feel confident with about your transaction.

However, according to a recent analysis of survey data collected in June 2006 for AARP, most consumers admit to not understanding the fundamentals of the real estate industry. And this can spell trouble.

The Consumer Federation of America — an advocacy, research, education, and service organization based in Washington, D.C. — conducted the survey analysis. Results revealed that many respondents didn’t understand real estate basics, including the fact that it’s possible to negotiate better prices for basic services.

The analysis also revealed that most Americans view real estate agents, brokers and services favorably but have a poor understanding of these services and object to specific industry practices, such as when an agent or a firm can represent both buyer and seller.

Consumers at a Disadvantage

The survey questioned 2,036 Americans, 565 of whom had used the services of an agent or broker during the past five years. Only 36 percent of all respondents said they knew “a lot” or “a fair amount” about real estate agents and brokers and their consumer services.

And just a few knew that the multiple listing service is the most complete source of information about homes for sale (34 percent), that commissions can be negotiated (26 percent), and that state real estate commissions regulate the industry (30 percent). In fact, 41 percent thought that the industry or its agents set commissions, and 13 percent thought state law sets commissions.

And even though 58 percent of respondents who had used the services of an agent or

broker in the past five years called themselves knowledgeable about real estate services, there also were some gaps in their understanding of the industry.

Of the respondents who had worked with real estate professionals, 44 percent knew that the MLS is the most complete information source about homes for sale, 31 percent knew commissions can be negotiated, and 38 knew state commissions regulate the industry.

Unfortunately, this poor understanding of the real estate industry can negatively affect the type of services that consumers receive.

“Home sellers and buyers who think they understand a complicated industry, yet in fact do not, are at a disadvantage in obtaining effective representation, reasonable commissions, adequate redress, and for buyers, complete information about listings,” said Stephen Brobeck, the federation’s executive director.

For example, buyers who don’t have access to the full array of property listings may find it harder to find a home. And consumers who don’t know that commissions are negotiable may suffer at the time of purchase.

Common commissions for the sale of houses are about 5 percent to 6 percent, but most survey respondents (59 percent) thought that a 6 percent commission on a $300,000 home is too high. If consumers don’t know that they can negotiate, or that there are other options, they may grudgingly pay out this commission anyway. And that may not serve their best interests.

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