Business & Real Estate

Do you need to pay all that money to a real estate agent? Upstart firms say no

Upstart real estate brokerage Purplebricks entered the British market several years ago and disrupted it by offering flat-rate fees to home sellers and rebates to buyers. It quickly became the dominant online marketer of residential properties there.

Purplebricks landed on U.S. shores last year with similar intent. Among the first markets it entered, after launching in Los Angeles, were Sacramento and Fresno. The company claims its online platform speeds offers and negotiations, and its lack of offices allows it to work for far less than traditional Realtors.

Whether discount firms such as Purplebricks can grab a significant share of the Sacramento market from the likes of RE/MAX and Coldwell Banker remains an open question. Similar cut-priced firms, which tend to crop up in sellers’ markets like mushrooms after rain, have failed to make substantial inroads in the past.

“This is just the new Help-U-Sell,” said Pat Shea, president of Lyon Real Estate, the Sacramento region’s largest brokerage. “It’s symptomatic of the market we’re in.”

But the newcomers say their arrival could signal a more lasting shift in the U.S. market, where sellers generally pay a commission of between 5 percent and 6 percent to a Realtor, who then splits the money with the agent representing the buyer. (Both agents split their commissions with their brokers.)

The startups cite a number of converging factors, including advanced technology, younger buyers accustomed to such technology and people fed up with giving away big chunks of their household wealth to brokers and agents, especially in a market where houses seem to sell quickly with little effort.

“In a sellers’ market, where the turnaround time time is 30 to 60 days, why would anyone pay a 5 to 6 percent commission?” said Eric Eckardt, CEO of Purplebricks in the United States.

The company charges a flat rate of $3,200 and claims to perform most of the tasks that sellers’ agents usually manage for a 2.5 to 3 percent commission. The seller’s portion of a traditional commission can run as high as $10,500 for a mid-priced $350,000 home in Sacramento County – three times as much as the Purplebricks fee.

Sellers still pay a full commission to the buyer’s agent under the Purplebricks model and those used by other discount brokerages. It’s a way to make sure that buyers’ agents aren’t dissuaded from doing business with cut-priced firms. Some of the start-ups promise rebates to buyers, however.

Another flat-rate firm called Reali started in 2016 and recently arrived in Sacramento. Based in the Bay Area, Reali was founded by real estate and high-tech entrepreneur Amit Haller.

It offers sellers flat-rate fees – starting as low as $950 for a home priced under $250,000 – for what Haller said are nearly all the services offered by agents working in traditional brokerages.

“We thought the commissions in the industry are excessive,” Haller said. “Many houses today are selling themselves.”

Consumers these days also have far more access to online information about homes for sale, recent comparable sales and other data once available only through real estate agents armed with a multiple listing service and other exclusive data sources.

Today, “buyers can do their own research,” using online services such as Zillow, Haller said. “They don’t need agents as much.”

Salaried agents

When Reali agents represent buyers, they kick back a large percentage of their commissions, he said.

The company claims it can offer such low prices by taking advantage of technological efficiencies. Agents and clients transact business through its smartphone application. Such dealings are what younger buyers expect when purchasing an appliance, a car or even a home, Haller said.

“Most probably, a buyer today is going to be a millennial” in their 20s or 30s, he said. “They’re looking for less printed brochures and more immediate service – uploading and downloading documents, connecting with someone right away. (Reali’s platform) is well-targeted to the tools they expect and the marketing they expect.”

Seattle-based Redfin, founded in 2004, is probably the most well-established discount brokerage in the market these days. It provides a home-search service, like Zillow, but operates more-or-less as a traditional brokerage.

Unlike the Coldwell Bankers of the world, where real estate agents are independent contractors earning commissions, Redfin employs and pays salaries to its agents with bonuses for strong customer service. The model eliminates potential conflicts of interest between agents and clients, Redfin says.

The company charges sellers a 1 percent commission, with a minimum of $3,500, and pays buyers’ agents a commission that’s roughly the same as they’d earn if splitting a 5-6 percent commission with a Lyon or RE/MAX agent.

At closing, Redfin sellers may end up paying total commissions of 3.5 percent instead of 5 to 6 percent. That could add up to a savings of $12,500 for an owner selling a $500,000 home.

Julie Fisher said that after she understood Redfin’s business model, she had no concerns about using the company to sell her house in Lincoln in 2015 and again to list her current home in Roseville for $595,000.

“Once I’d read online about buying and selling, I was instantly comfortable,” Fisher said. “I felt it was very well organized.”

She said she’s found it less difficult to deal with Redfin because the company takes a team approach that lets her talk to different specialists, not just one agent. “It was easier to get hold of Redfin,” than the Sotheby’s agent she used when buying her first home in 2008, Fisher said.

Fisher figures she’ll save roughly $12,000 on the sale of her Roseville home by paying about $21,000 in commissions instead of $33,000. “I almost feel bad for people that don’t know about Redfin because they’re losing so much money,” she said.

‘You can breathe’

Fisher’s agent, Melanie Cortez Franklin, joined Redfin in 2012 after working for a large Keller Williams Realty brokerage in Placer County for five years. Though she’d worked with hundreds of other agents at Keller Williams, she said she felt awkward asking for help or advice because the agents competed with each other for business.

At Redfin, she said, “I can run things by other agents because there’s no competition.” There are 20 to 25 Redfin agents in the Sacramento region who cover different geographic areas and don’t compete with each other, she said. Franklin specializes in Roseville, Rocklin and Lincoln.

“It’s smaller,” she said of Redfin. “It’s more like a family or a team.”

Franklin said she might make “a little more” with a traditional brokerage but wouldn’t be able to rely on a steady paycheck, which eases work stress, especially while raising children.

“You feel like you can breathe,” she said.

Not having to turn deals faster and faster to earn more commissions also means she can put her clients’ interests first, she said. Unethical agents with traditional brokerages may sell a house for less than what its worth or allow a buyer to overpay to get a quick close, she and others said.

Franklin said she gets paid more only when clients give her good marks on Redfin’s customer surveys. “We have different motivations,” she said.

Brokers and agents who work for traditional firms say customers are kidding themselves if they think they are going to get the same service for less. They say going with a cut-rate brokerage is like flying a discount airline instead of traveling first-class or staying in a Motel 6 instead of at a four-star hotel.

“There’s a reason you shop for some things at Walmart and another reason you shop for things at Nordstrom,” said Barbara Lebrecht, an agent with the Galster Group, a franchisee of real estate giant Weichert in Fair Oaks. “We’re handling our clients’ largest assets.”

That means putting in the time and effort required to get sellers the best price or save buyers the most money, she said. It also means knowing the local market week-by-week and street-by-street.

“Literally, on the other side of the tracks, values could change by 50 grand,” she said.

One discount brokerage she dealt with failed to put a lock box on its client’s home, meaning agents couldn’t show it easily. The agent didn’t know the local real estate customs, she said.

Lebrecht said the best full-service neighborhood agents establish relationships with their clients and often with their family and friends. Referrals are a big source of business. Being involved in the community is key.

Cut-priced brokerages can be more “transactional,” she said, meaning they do a deal and are gone.

“When I’m selling your house, I’m selling where your kids took their first steps and where you planted the redwood you got at the state fair,” Lebrecht said. “I know you’re looking for good schools, that you have to switch where you shop for groceries and get your hair done. I’m involved in your life.

“It’s a home,” she said. “It’s not a house.”

Lebrecht’s clients Sandy and Ron Westerberg said Lebrecht more than earned her higher commission as she helped them search for the right home for over a year. The couple, in their mid-50s with grown children, were looking for a single-story house with a little acreage as a retirement property.

They knew exactly what they wanted, Sandy Westerberg said, but would think at times that they might be able to make a house work, even though it wasn’t quite right. Lebrecht could have made a quicker sale by encouraging them to buy one of those properties, Westerberg said, but she urged them to stick to their plan until they finally found the perfect house near Auburn.

“She went beyond,” Sandy Westerberg said.

Shea, with Lyon, said it’s good for homeowners and buyers to have choices in real estate firms and fees. Some buyers or sellers will be fine with a lesser level of service for a lower commission and can do part of the work themselves. Others need more expert assistance and minimum disruption to their busy schedules.

“I do believe you get what you pay for,” Shea said.

Hudson Sangree: 916-321-1191, @hudson_sangree

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