From the Death Star to the Rebel Alliance
Realtor and CEO Van Davis used to say a 6% commission on a home sale was fair. Now he says never pay more than 3%
(MONEY Magazine) – Imagine that the head of Merrill Lynch had jumped ship to E-Trade at the dawn of the online-brokerage boom. In the real estate world, that's essentially what Van Davis, 46, did last July when he quit as CEO of Century 21 to take over discount realtor Foxtons. With traditional agents fighting to preserve their 6% commissions, discounters like Foxtons, Assist-2-Sell and ZipRealty are not popular with the establishment. MONEY senior writer Jon Birger spoke with Davis.
Q. So what do your former colleagues think of your move?
A. They think I'm insane. Obviously it's a big change, going from the CEO of the world's largest residential real estate sales organization to a start-up.
Q. Why did you do it?
A. Sellers want full service but are sick of paying exorbitant commissions; buyers want rich information on the availability of properties, but they also want you to respect their time and give them the ability to inform themselves prior to having to commit to an agent. At Century 21, even as CEO I found it incredibly difficult to get my agents to embrace these concepts.
Q. Doesn't sound like you have a high opinion of the typical real estate agent.
A. The top 20% of realtors are just excellent. But I also feel that there's an abundance of realtors who aren't up to the task.
Q. Can you really provide full service for a half-the-price 3% commission?
A. Absolutely. We will do everything that our competition does. When we list a property, it goes in the multiple listing service on Day One.
Q. Traditional agents say discounting is a fad that will end once the real estate market cools down and sellers have less leverage.
A. I actually think a slowing market would be very favorable for us. Part of the reason sellers have been willing to pay higher commission rates is they've made so much money on appreciation. But let's say appreciation rates come down to 2% or 3% a year, in line with what we've seen historically. If I buy a $200,000 house, five years from now it's worth $220,000. Then I have to write a big check to an agent. Whoa, does that hurt! In a slower market, the opportunity to pay less commission is going to be attractive to more people.