The Wall Street Journal looks at the way the housing market works. "As home prices soared in recent years, so did the percentage-based commissions charged by agents. Residential real-estate commissions in the U.S. totaled $61 billion in 2004, up 42% from 2000. But isn't this trend at least making Realtors happy? Alas, no. The number of real-estate agents has grown even faster than total commissions."

"Membership in the NAR, the dominant trade group, totals about 1.25 million, up 63% since 2000. As a result, there's not even close to enough commission income to keep all those agents in Porsches. The median annual income of real-estate sales agents in 2004 was only $37,600, down from $39,300 in 2002, according to the Realtors. Even that figure overstates agents' well-being. Because most agents are independent contractors rather than employees of the firms where they work, they need to pay out of their own pockets for such things as health insurance, pension plans (and) driving customers to see homes."

"A 2003 study by Chang-Tai Hsieh and Enrico Moretti found that when home prices go up in a city, more people become agents. Their productivity, the number of transactions completed per agent, then declines. The result is that income for the typical agent remains low, even though some top performers earn six-figure incomes. 'Somebody is paying more, us, consumers, but nobody is better off,' Mr. Hsieh says. He calls it the 'tragedy of the commission.'"

"Realtors often point to the large number of agents and their relatively low pay as proof that the industry is highly competitive. But as Mr. Hsieh and other academics have found, a large number of competitors doesn't necessarily mean lots of price competition. Commission rates have come down only modestly in recent years. Real Trends estimates that the average fell to 5.1% in 2004, from 5.5% in 1998."

"Of course, some brokers do compete on price, including a growing band that charge a flat fee for selling a home. But a recent report from the GAO found that real-estate brokerage firms have 'displayed more evidence of competition on the basis of nonprice factors, such as reputation or level of service, than on price.'"

"One possible reason for this, the GAO said, is the use of MLS databases. These services allow agents to see how much commission is being offered on each home. They have more incentive to show their customers the homes with higher commissions."

"Another reason is that Realtors are well-organized and have persuaded states to pass laws discouraging price competition. For instance, about a dozen states prohibit agents from rebating part of their commission income to the consumer. Peer pressure also plays a role: Agents need to cooperate with one another to sell homes, and offering discounts isn't a good way to make friends in the trade."

"Yet consumers also are partly to blame. Many people don't even consider using a discount service or negotiate with their agents on the commission.. The message for consumers is clear. Those looking for a new home should insist on being shown all of them, not just the ones that come with the fattest commissions. Home sellers should interview at least a few agents before choosing one to market their homes"