Monday, July 8, 2013

Should Brokers Compete for Your Business?

Several years ago, I wrote a post questioning the ubiquitous six percent commission real estate brokerages generally ask for to sell homes. It wasn't so much that it was a lot to pay as that sellers seemed so willing to fork it over without much of a question. Nor did an alternative full-service compensation seem to be available.

A couple of months ago at The Plucky Observer, I wrote a post on what the *Next Big Thing* might be in real estate. Most of it was about a startup called Lessthan6percent, one of a budding group of young entrepreneurs trying to revolutionize the way homes are bought and sold. When Max Diez, one of the founders, contacted me about some service enhancements, I decided to write an update on the changing scene.

Several forces are forcing change. First, as a group, real estate brokers rank low in public polling. No surprises, there. Second, evidence suggests that Millenials and Gen-X'rs don't like working with real estate agents. Third, traditional brokerages are having trouble attracting young people into the profession.

At Lessthan6percent.com, sellers may anonymously and privately submit their property and needs, and within forty-eight hours, they'll receive competing proposals from the website's top-ranked real estate agents. The site enhancements are a page redesign on how the program works, videos of their "top agents," and a home price comparison to the S&P 500, the latter of which strikes me as not particularly useful. The other two definitely are.

I have a small problem with how agents get ranked, though. Run a Google search on "Top Real Estate Broker in _____," and you'll get dozens of answers. I don't know what Lessthan6percent's metrics are, but you'll be stuck with them. Still, this innovative service goes a long way to force transparency and competitive pricing correlated with specific service. The videos should mitigate the smarm 'n' charm factor.

Redfin pioneered the way with consumer-centered brokerages. Starting out as a software company, it hired brokers much later, paying them with a salary and having their compensation tied to customer reviews. I've only met a few Redfin agents, but they rank as the most competent I've ever known. at Redfin's websites are robust, information-rich and easy to use, allowing people to do quickly and easily what they would do anyway with a traditional brokerage, only without the filtering and the hassle. Redfin listing fee is 1.5%, full service (with some price point limitations), and they rebate commissions to buyer-clients where allowed by law.

A new one to me is Findwell, located only in the Seattle, WA area. It's program is similar to Redfin's, and while offering robust property information required for buy/selldecision-making, its website is more detailed on its brokerage services than Redfin's. I can't leave this without giving Findwell's Mythbusters sub-page a shout-out. As with Lessthan6%, though, I don't know Findwell's metrics for evaluating brokers.

A couple of twenty-somethings in New York whose friends hated working with real estate brokers just launched a New York-based brokerage called Suitey, which you can read more about in this Inman News article. Suitey's business model is a direct child of Redfin's, to whom its founders give credit.

The point of this post isn't to plug companies so much as it is to suggest a trend, and maybe even *The Next Big Thing.* I've been predicting these kinds of real estate compensation models for years, and have been consistently wrong. When I had my own brokerage, I offered a variety of fee scenarios, including hourly fee-for-service. Few clients used anything but the traditional model, though, presumably not wanting to pay upfront, even though the savings were significant. 

But it's looking like demographics, declining home ownership, and perhaps a severely-challenged real estate market may be firing up a change. We'll see, though if change is coming, it will take time. There's a lot of inertia inherent in the traditional brokerage model. To paraphrase T.S. Eliot, it will not come with a bang, but a whimper.

Agree with me? I'd love to hear from you.