Discount real estate brokers gain appeal
Sharon Mather wanted to sell her house in Long Beach, Calif., but she was reluctant to pay the standard listing commission. During the intense seller’s market of 2020, she’s one of many homeowners rethinking the wisdom of paying full freight to listing agents.
After shopping around, Mather found a discount broker willing to market her house for a fee of just 1%, well below the 2.5% typically charged by listing agents.
In addition to the 1% promised to her listing agent, Mather agreed to pay the buyer’s agent 2.5%, and the house quickly sold this fall. Mather’s total selling costs were 3.5%, well below the typical total of 5%.
Based on her sale price of $400,000, Mather spent $14,000 on broker fees. If she had accepted the going rate of 5%, Mather would have paid $20,000 to the agents involved in the sale of her home. “That’s a lot of money to save,” she says.
Mather hired an agent she found through Clever Real Estate, a nationwide service that matches bargain-hunting sellers with agents willing to reduce their fees. The company’s founder says discount brokers have a renewed appeal in the postcoronavirus housing market — where bidding wars are common, marketing times are short and desirable houses often sell for above list price.
“Sellers are left thinking, ‘Why did I spend so much money when my home sold in a day?'” says Ben Mizes, Clever Real Estate’s chief executive officer and founder.
The nation’s most prominent discounter, Seattlebased Redfin, also markets listing fees of 1% to 1.5%. By contrast, the nation’s largest brokerage, Realogy Corp., says its average is 2.43%.
Realogy — which owns the Coldwell Banker, Century 21, ERA and Sotheby’s International Realty brands — reported that the average commission rate at its company-owned operations rose to 2.43% per “transaction side” in the first nine months of 2020, up from 2019’s record low of 2.41%. If the listing agent and the buyer’s agent split the take equally, that would suggest an average commission of about 4.9% this year.
Both Clever Real Estate and Redfin insist that their clients receive the same level of service as sellers who list with full-priced agents for thousands of dollars more.
Even so, Redfin says its market share was a modest 1% as of Sept. 30. American homesellers, it seems, are sticking with full-price brokers. Daryl Fairweather, Redfin’s chief economist, says that’s in large part because home sales are a high-stakes, low-frequency transaction, a reality that leaves many sellers to embrace the status quo.
In the days before the Internet, real estate commissions averaged 6%. While some sellers still pay that sum, the going rate has dwindled to 5% or less.
As technology enabled new ways of doing business, commissions have fallen in recent years in part because consumers have been conditioned to push for better deals on everything
The National Association of Realtors, long fearful of allegations of antitrust violations, stresses that rates are set by individual agents and their clients. Realtors also point out that they get paid only when a deal is consummated. All of the work they perform during property tours and open houses and home inspections is done for free, in anticipation of a payday at the closing table.
Even so, some discounters have flopped including YHD Foxtons and Purplebricks, both no longer operating in the U.S.
That leaves Redfin as the biggest discounter in the U.S. housing market. Reflecting the appeal of the discount model, Redfin’s stock market value is more than that of Realogy and RE/MAX combined.