Taking a Gamble on Cut-Rate Commissions

By Elizabeth Razzi
Sunday, May 20, 2007

Is it possible to get a rebate on something you didn't pay for in the first place? Not really. And that's something home buyers should keep in mind when looking for a real estate agent.

The services of a buyer's broker don't come free, even though buyers aren't asked to take pen to checkbook to pay for them. The good news is there are a growing number of local real estate agents offering to work with buyers for less in the form of rebates.

Generally, a listing agent and the agent who brings a buyer split the commission evenly. In a rebate arrangement, a buyer's agent gives part of his or her share back to the buyer when the deal closes.

Although commissions technically are paid by the seller, there's a strong argument that the money really comes from the buyer -- the person who brings all the cash to the table.

To some degree, it's a semantic argument. The cost comes off the top of the deal. The tens of thousands of dollars owed for a brokerage commission certainly are factored into the bottom line a seller is willing to accept. That raises the price the buyer will be asked to pay. Seller pays, buyer pays, both pay. Each statement is true, depending on how you look at it.

In the Washington market, we're talking about big numbers. Last week, the National Association of Realtors reported that the median home sales price in the Washington metro area was $427,800 in the first quarter of this year. Real estate commissions nationally average about 5.2 percent, according to Steve Murray, editor of the Real Trends trade newsletter. Taken together, that translates to a typical commission of $22,246. (Forget about the "standard" 6 percent commission. Murray says the average has been at or below 5.2 percent for at least three or four years.)

Locally, the number of agents offering buyer rebates is set to grow in the next couple of weeks. Redfin.com, the Internet-based discounter that was profiled on the TV newsmagazine "60 Minutes" a week ago, plans to bring its service to the Washington region in June. Redfin rebates to buyers two-thirds of the commission that it receives as a buyer's broker. So if a Redfin buyer's broker stands to get a 3 percent commission, 2 percent of the price will be rebated to the buyer and 1 percent will be retained by Redfin.

"Most people apply it to closing costs, or we can write a check to the buyer, whatever the lender will allow us to do," company spokeswoman Cynthia Pang said. When it represents sellers, Redfin charges a flat listing fee of $3,000, payable at the time of listing, or $4,000 if the seller prefers to pay at closing.

Redfin will be joining a market that already has its share of brokers willing to cut a deal. But they don't always advertise it. Often, agents will wait for the buyer to ask for a rebate; once you bring it up, they will negotiate with you over which services they will provide and at what price.

Jay Seville, an agent with Re/Max Allegiance in Arlington, who blogs about the condo market along Metro's Orange Line in Virginia at http://www.justnewlistings.com, volunteers to rebate "a significant portion of your closing costs" to buyers who engage his services after they have chosen the condo they would like to buy. "It's only fair if you've done the work on searching already," he writes on his blog.

Another Internet-based real estate company, ZipRealty.com, has been in our market since 2000 and has about 70 agents working in the District, Maryland and Virginia. It will rebate to buyers 20 percent of the commission it receives, and it offers listing-side discounts of up to 1 percent of the sales price.

However, while brokerage execs are quick to talk about their willingness to discount their commissions (lest the antitrust watchdogs at the Justice Department be paying close attention), they're nearly as quick to argue that a full-commission agent is worth the extra money because he or she is likely to be much more effective in getting buyers or sellers a more favorable price.

One Alexandria-based entrepreneur is taking both approaches. Daniel R. Odio-Páez founded RebateReps.com, a referral service to agents willing to offer buyer rebates of 1 percent of the home price. He also founded DROdio Realty, a more traditional brokerage that doesn't tout rebates on its Web site. If buyers using DROdio ask about rebates, they are directed to a fact sheet on the site, which says that the company is happy to offer a rebate but explains the trade-offs.

"Maybe the agent is new or inexperienced and needs the business," Odio-Páez says on his Web site. "Maybe the firm is virtual and can't open homes up for you, so you'll have to do it yourself. But when you focus on getting a rebate, you will always be giving something else up." He also warns: "Not negotiating the best deal could also cost you much more than you'll save by getting a rebate."

And what about traditional brokerages such as local heavyweight Long & Foster? Will they agree to discounts?

"Yes, we do what it takes to get the deal to close," said Brenda Shipplett, president and chief operating officer. "I've been in the business since 1976. I didn't offer rebates, but I certainly gave back dollars. If I'm negotiating a deal and they're $2,000 apart, and I have a stubborn seller and a stubborn buyer, then I'm going to come up with $2,000 just to get the deal to go."

And there's one important thing to remember if you hope to get a rebate on new construction: The first thing model-home salespeople do is ask showroom visitors to register. That is when you need to write down that you are represented by an agent. If you wait until your second visit, the builder will probably balk at paying any commission to your agent -- and there goes your rebate.

E-mail Elizabeth Razzi atrazzie@washpost.com.

© 2007 The Washington Post Company