A fresh attack on the 6% commission
New real estate brokers are starting to chip away at commissions in the form of buyer's rebates.
NEW YORK (CNNMoney.com) - These days, when it comes to homebuying, you're doing more of the work. But buyer's agents still claim the same fat fees from sellers when deals close -- generally half of the typical 6 percent commission, or $15,000 on a $500,000 house.
Traditional brokers are trying to keep it that way, but a new breed of agent is growing in number, kicking back substantial rebates at closing time.
"Finding the house is probably 75 percent of the work," says Joe Fox, CEO of BuySide, one of those new, Web-based businesses. "Why not give [buyers] 75 percent of the commission?"
Today, according to the National Association of Realtors, 77 percent of home buyers start their search on the Internet at sites such as Realtor.com. Other sites provide comparison home value estimates and information about town and neighborhood facilities. Offerings include realestateabc, Zillow.com and HomePages.com.
With their clients doing much of the grunt work, the new "rebaters" are happy to take less for the services that the buyers still require – such as scheduling appointments with listing agents, preparing documents and guiding clients through closings.
For brokers, gain without pain
Mac McNear, a spokesman for one of these companies, BuySide Realty, says, "Our agents never leave their offices. Buyers find listings themselves, but they don't accompany the buyers on their visits."
Daniel Odio, who runs a traditional full service brokerage as well as RebateReps.com, says, "One of the main duties of a traditional buyer's agent is to drive clients around to listings. I like to take the taxi driving out of the buying experience."
That results in a big saving in time and effort.
BuySide, which has launched in California, Illinois and Florida and expects to be nationwide by early 2008, returns three-quarters of the buyer's agent's share to clients.
Redfin, which is expanding to California this year, rebates two-thirds of its commissions.
RebateReps kicks back one percent of the home's selling price (about one-third the commission) to buyers.
For many buyers, it's found money. For the brokers, it means a much more productive business model. "One agent can do several transactions a week," Kelman says. "While traditional agents do several transactions a year."
Traditional brokers react
How do traditional brokers feel about these new business models? "They hate it," says Odio. "It threatens their livelihood." Odio says he was told, "We'll be blackballed from the industry; that other agents wouldn't show houses to our clients."
"When we started brokering transactions," says Redfin's Kelman, "people threatened to break our kneecaps."
But the rebaters have a not-so-secret weapon – greed. Kelman says. If listing agents get an offer, they want to do a deal – that is, after all, the only way the seller's agents get paid. And, the rebate has no effect on their end of the commission; they keep their entire share.
Odio even refers clients to traditional full service brokerages such as RE/Max and Century 21. They accept the deals that include a rebate for clients. "The industry's dirty little secret is that any agent will give a rebate but they won't fess up to it," he says. "I bet I can find an agent anywhere in the country who will be more than willing to do all the hand-holding a client can want and still kick back the one percent."
Not all brokers are eager to pass along savings. Some have benefited from the efficiencies of technology without lowering their commission rates. And they are doing that during years of soaring home prices, which also raises their profits.
"Agents can service more clients," says Bob Brisco, CEO of Internet Brands, which launched realestateabc, "and we're seeing the more sophisticated and established brokers, ones able to harness technology, prospering more than ever."
As Odio says, "The future is already here; it's just unevenly distributed."