When David Puening sold his house in Arlington recently for $47,500 and bought another in Sterling for about $60,000 he saved $2,500 on the deal. When Sadie Lewis sold her Arlington home for $46,000, the transaction cost her only $350.
Both Puening and Lewis made their transactions through 4-3-2-1 Realty, now located in Fairfax. This small brokerage, founded in 1972 by Alice Maher and her late husband Robert "Bud" Maher, has been called the Don Quixote of Northern Virginia real estate. Admirers and detractors alike say 4-3-2-1 of tilts at windmills in pursuit of an impossible dream.
The Maher dream is to help reduce the soaring cost of housing in the most expensive region of the country by cutting commissions from the standard 6 per cent to between 4 and 1 per cent - and to make money doing it. In their quest, the Mahers have come up against and vanquished some formidable adversaires: the real estate establishment - including brokers, state and regional boards and the official realtor multiple listing service in Northern Virginia.
The Maher firm has captured no more than a mouse's share of the real estate pie. But in one employee's view, the share belongs to the mouse that roared - the firm likes to think that the fat cats are running a little scared.
The graduated commission system rewards homeowners and buyers for the amount of effort they are willing to put into a sale. Sadie Lewis was one of those charged around 1 per cent because she found a prospective buyer herself. Maher essentially helped her get financing and worked up the contract.
David Puening paid a 4 per cent commission on the sale of his home because another realtor provided the buyer. At the same time, he bought a house listed by 4-3-2-1 and the seller paid a commission of 3 per cent. Puening's 3 per cent saving over the standard 6 per cent commission meant the house cost him less.
Most of Maher's sales are arranged for a 4 per cent commission; a few cost the client merely 1 per cent. (When a 4 per cent sale is co-brokered, the other realtor gets 3 per cent; Maher takes 1 per cent as the lister) Maher charges clients 3 per cent if 4-3-2-1 provides the buyer for its own listing and shows the house. If the homeowner takes over showing too, the rate is reduced to 2 per cent.
How can 4-3-2-1 afford to do business on commissions as low as 1 per cent? Maher says she can afford it because her firm does not provide the standard services offered by realtors charging for 6 per cent. It does not staff open houses, does not drive prospective buyers around and does not advertize individual houses, placing only institutional ads in newspapers and on radio to explain the rate system.
It does screen prospective buyers to help ward off those unable to pay. It does place a property on the mulitple listing roster maintained by realtors in Northern Virginia. The firm also tries to save money for clients by advising them where they can find the cheapest financing and legal advice, if they want to lawyer to review the contract.
Maher relies heavily on word-of-mouth advertising and personal recommendations. Barbara and James Jaggers of Vienna, Va. were nervous at first about listing their home with 4-2-2-1 despite friends' endorsement. The feared their house would not move, would not be shown by other realtors. After listing their house Aug. 15, the Jameses found they were showing their home every two days. It sold Nov. 10. They called 4-3-2-1s service "very good, very competent".
Clients often lend to be young, in the military and economy-minded, Maher says, Moreover, the are frequently people were have tried to sell their own homes without success and who feel they would do better in a multiple listing, but are still willing to help the process to cut costs, she said. Nevertheless, Maher insists no particular Knowledge or experience is necessary. Only about 10 per cent of their clients leave -3-2-1 for other brokers, she said.
One would think that Maher's agents would have to work twice as hard to make the same amount of money is half the commission or less. Not, so, says Maher, because since and clients contact 4-3-2-1. agents do not have to spend their time calling or visiting propective sellers to get them to list with the firm. Both clients and agents seem to appreciate the lack of high pressure salesmanship practiced by many realtors, she added.
The company has four employees. Last year it listed 300 units, compared with 35 in 1975, and sold about 65 per cent of them. Maher expects to double or triple that volume this year, now that 4-3-2-1's windmill tilting is virtually over.
Soon after Alice and Bud Maher inaugurated discount commissions, Virginia realtors began boycotting their listings and making disparaging remarks about them to clients, she said. Their business going down the drain, Bud Maher, who died earlier this month, sued 25 leading Virginia realty companies - all stout defenders of the 6 per cent commission - charging them with unfair trade practices and violations of anti-trust laws. Eventually the suit was settled out of court and the Mahers received $12,000 in damages. Maher was also blackballed for a time from the multiple listing service, his windon said.
Last year he sued the Virginia Real Estate Commission, declaring its law against rebating was unconstitutional. (Maher would rebate 2 per cent of a sale price to a buyer when that person was obliged to sign a contract calling for a 6 per cent commission with some other firm) Maher won, although the commission still requires 4-3-2-1 Realty to get advance approval on rebates before a contract can be signed. This process, Alice Maher says, merely serves to delay the contract one or two days and can result in loss of a sale to a competitor.
The Mahers may have relished windmill tilting, but Andrew M. Barr, another discounter, says he is just interested in making money.
Andy Barr has made and lost a fortune in his 25 years in real estate. But he is convinced discount brokerage has been the key to the good times, rather than the bad.
His A. M. Barr Realty, Inc, of Arlington, charges homeowners anywhere between 5 and 5.9 per cent of the sale price to sell their property instead of the customary 6 or 7 per cent. The percentage difference is determined by how cooperative the client is. And ideal client - in Barr's view - accepts the broker's advice on pricing, must be reasonable about demands for cash when financing is difficult, agrees to an exclusive, listing for 120 days, gives the firm a key, puts up the "For Sale" sign when the company wishers and shows the house during a reasonable number of hours.
Cooperation results in a fast turnover, according to Barr, 30 per cent of his houses go in one week. Eighty per cent of his business is done in Northern Virginia, with the remainder split between Maryland and the District. He claims to sell 95 per cent of his listings, compared with an industry average of 50 per cent.
Because Barr does not belong to the multiple listing service, the firm compensates by seeking customers through detailed ads in military and general newspapers, direct mail and a course on real estate he runs in his office. For $50, students learn how to buy a house with no money down, what to look for in inspection, etc. Barr makes additional income from a building management service, income he says help make a lower commission possible.
"I sell the house, not the people", Barr said. "Unlike people, the house can't get up and walk away." Instead of showing 500 houses to 50 clients, A M Barr Realty shows its 50 houses to 500 clients, he said.
Barr claims his montly sales volume has tripled in the last two and a half years. He and his nine associates sold about $6 million worth of property last year, he said, and some of the salesman take home $30,000 to $40,000 a year.
"If other brokers knew how much we make, they'd flock over here," Barr maintains.
One veteran broker with a large Virginia firm retorts, "People in the industry aren't flocking to work for him because of his record" (Barr's license was suspended for several years back in the 1950s for failure to record FHA second trusts) "It's likely he can't build up a sales force, so he's turning it around to show how his firm is going great guns."
Barr says he was disillusioned with the miltiple listing service - "realtors descent on a property in hordes and proceed to flight each other off" - and with staffed open houses - "realtors only do it to meet customers and lure them to other properties". So about nine years ago, he went back to the "old way" of selling through exclusive listings, cutting commissions in the process.
At first, he said, his competitors were vivid, and spread a false rumor about his having been in jail during the suspension. But now, Barr says, realtors no longer refuse to split the 5 per cent commissions with him.
Since Barr lowered his commission to 5 per cent, others have outdone him and some even charge a fixed fee amounting to less than 1 per cent on the average-priced house, a state of affairs Barr professes to encourage.
But discount brokerage is not always successful.
Lewis Stone, sales manager of Carpenter Bros., Newport News, Va, remembers his experience with some sadness. In April, 1975, Carpenter reduced its commission from the prevalent 7 per cent to 5 per cent. Almost immediately listings doubled, unit sales increased by a quuarter, he said.
Yet, dollar valume actually shrank. After a year and a half, the firm decided to go back to 7 per cent. "We realized we could sell fewer houses at 7 per cent and realize the same return," Stone said.
He said the discount system didn't work for them because there was a slow market and competitors wouldn't cooperate. He also cited seller greed. Some realtors refused to show a Carpenter listing or to share a sale with Carpenter because the firm offered them only 2.5 per cent, instead of the customary 3 per cent share.
Moreover, home owners showed a tendency to list at higher prices, so they could keep for themselves the extra 2 per cent that would have gone to the realtors. Consequently their homes were no great bargains and did not sell more quickly than others. And, them clients homes remained unshown and unsold for long periods, the clients left Carpenter Bros. for competitors charging 7 per cent, he said.
Until last year, Virginia Homeowners, Inc., Springfield, Va., realty firm, would refer clients who no longer wished to continue with the firm's assisted sell-it-yourself plan to conventional brokers. The clients were assured of getting their homes listed and any contracts written for something under the customary 6 per cent.
However, president John F. McMahon Jr. found he was having difficulty recruiting salesmen at the lower commission rate. So this year, Virginia Homeowners no longer guarantees that it can place its clients on multiple listing rosters at discount rates, although it agrees to match what other firms change - that is, if the seller can find a realtor willing to contract for less than 6 per cent, Virginia Homeowners will agree to split 50-50.
Next: Do-it-yourself realty.