At a time when overall housing sales in the Washington region are cooling, Redfin is reducing its commission for listing agents from 1.5 percent to 1 percent exclusively in this area in part to encourage more potential sellers to get off the sidelines and put their homes on the market.
Housing inventory in the region is slowly rising. Still, many homeowners who might want to sell have held on to their properties because they don’t want to give up their low interest-rate mortgages or they’ve been concerned that they’d be unable to afford another home.
The brokerage announced Friday that it is temporarily reducing sales commissions for listing agents to 1 percent only in D.C., Maryland and Virginia. As is customary with the brokerage, though, sellers still would pay a 2.5 percent or 3 percent commission to the buyer’s agent.
The reduction in the commission could save sellers thousands of dollars. For instance, a homeowner selling a $500,000 house would pay the listing agent $5,000 under the 1 percent fee compared with $7,500 under the 1.5 percent fee. (Sellers would also pay $12,500 to $15,000 to the buyer’s agent.)
Redfin’s fees already were significantly lower than the standard 6 percent commissions paid at traditional real estate agencies. A seller of a $500,000 house at a traditional real estate agency would pay $30,000 in commission, half of which would be split with the buyer’s agent.
“I think it could encourage” sellers, Karen Krupsaw, vice president of real estate operations for the Seattle-based firm, said in an interview.
“The 1 percent could help sellers that want to still net a high amount from their home sales,” added Krupsaw, who is based in D.C. “They can use it if they wanted [to] net more money for their sale or lower their price.”
Based on the market reaction to the experiment, Krupsaw said, Redfin officials will decide early next year whether to continue the 1 percent fee in D.C. and whether to expand it to other markets.
Krupsaw said Redfin opted to launch the trial in the Washington region because of strong sales here.
“This is one of our most successful markets in the country” in terms of revenue, Krupsaw said. “This is a market dominated by young professionals, by educated homebuyers and there’s a strong housing market that has done fairly well. Not to say it wasn’t affected by the downturn but it came out strongly and remains a solid market. Part of that is due to employment not taking quite as hard a hit as other parts of the country.”
Despite its discount price structure, Redfin considers itself a full-service brokerage, Krupsaw said.
“Recently, we launched 3D walk through [technology] for sellers as well as home seller dashboard. Every Redfin listing receives free professional photography and a personalized marketing campaign,” Krupsaw said. Sellers get a “four-color marketing brochure, a full-service agent advises them on presenting their home and pricing it properly and works with them from start to finish.”
But not everyone agrees with that assessment. “I know what our margins are. I can tell you point blank what they’re targeting doesn’t come close to covering our cost,” said Hans Wydler, owner of Bethesda-based Wydler Brothers real estate firm, which specializes in high-end properties.
“We have great marketing and great people who work with us and that takes money,” Wydler added. “Will [Redfin] be the same quality we can offer our client? They do a beautiful job but we have a different approach to servicing our client.”
The Redfin experiment comes at a time when more real estate firms around the country are investigating discount and alternative fee structures.
A spokeswoman for the National Association of Realtors (NAR) said the organization supports different fee structures.
“NAR encourages innovation and competition in real estate brokerage, and favors no particular business model,” Stephanie Singer, the organization’s spokeswoman, said in an e-mail. “NAR’s Realtor members embrace all kinds of business models and offer a full range of different kinds of services to best serve the needs of today’s consumers.”
CORRECTION: An earlier version of this blogpost failed to mention that Redfin sellers must pay a 2.5 percent to 3 percent commission to the buyer’s agent.