When Rachel and Mark Stephens were preparing to sell their home in Chevy Chase in Northwest Washington last summer, they started looking for a less costly way to handle the transaction.
The Stephenses are from the United Kingdom, where homeowners pay just 1 or 1.5 percent to real estate agents when they sell their home.
“We already sold a home in San Francisco and we didn’t want to pay a high commission again, especially because we knew our home would be pretty easy to sell,” Rachel says.
The Stephenses’ home is within the boundaries of sought-after Murch Elementary School on a large lot for that neighborhood. The couple hired Atieno “Ati” Okelo Williams, owner of DC Home Buzz, a real estate agency in Washington, to sell their home after interviewing several other companies.
They hired her for two reasons: DC Home Buzz — a boutique brokerage with six licensed real estate agents and four staff members who provide staging, marketing and transaction support — lists and sells homes for a flat commission fee of $9,900. And the Stephenses were confident that her marketing strategy would work quickly to get the result they wanted.
It did: Their home received four offers and they sold it in one day for a price slightly above the list price.
In listing with a broker offering the flat fee, the Stephenses saved approximately $20,000.
While DC Home Buzz introduced its flat fee commission structure in the spring of 2013, Redfin brokerage started its own game-changing low commission program last fall.
“Redfin already offers sellers a 1.5 percent commission nationwide, which is a lower fee than most other brokerages, but in the D.C. market we decided to test a 1 percent fee to gain momentum for our listing business,” says Karen Krupsaw, vice president of real estate operations for Redfin real estate brokerage in Washington.
A 6 percent commission is not necessarily a fact of life for people listing their homes for sale. Sellers not only can negotiate a lower fee, but they can take advantage of a growing number of brokerages offering flat fees and deep discounts.
There’s a spectrum of service models available to home sellers ranging from full service- full commission agents on one end to discount agents on the other end who provide a “pay-per-service” system in which sellers opt to pay separately for items such as a listing in the multiple listing service, a yard sign and fliers.
In between are full service-lower commission agents who either charge a flat fee or a reduced commission for the usual services that agents provide to sellers such as negotiating, a comparative market analysis and marketing. However, all real estate agents can negotiate their commission with their customers. Some are more willing than others to reduce their commission depending on their brokerage and market conditions.
Various models of discounted yet full service brokerages are being experimented with in different markets. For example, in Chicago, Lucid Realty has been offering a sliding scale of commissions based on the home price for seven years. The commission ranges from 5 percent with a 2.5 percent commission to the buyers’ agent for a home priced at $200,000 and up to 3.75 percent with a 2.5 percent commission to the buyers’ agent for homes priced above $1 million. More recently, the brokerage has started offering sellers the option of paying an hourly rate to their listing agent.
“The people with expensive properties get the best discounts with our model,” says Gary Lucido, president of Lucid Realty. “Oddly enough, those are the ones most gullible to the traditional brokerage pitch. They think a brokerage in a fancy office is going to get them a higher price.”
Lucido says that Redfin is “making inroads on a national level, but it’s really slow going on the discount model. Consumers are slow to adapt.”
Sam Khosh, a realty agent with Redfin in Dupont Circle, says his listings have increased since the new lower commission was introduced because the fee generates curiosity among sellers.
“Everyone wants to save money in every price range, and with the high cost of housing in D.C. even a half percent reduction in the fee represents a significant amount of money,” Khosh says.
Unlike other flat-fee or discount brokerages that require homeowners to do most of the sales work in exchange for a reduced cost, both Redfin and DC Home Buzz provide traditional listing services to sellers.
“We actually provide more than full service,” says Williams, “since we not only handle all the typical marketing, syndicate our listings through multiple Web sites and handle negotiations, we also include staging services in the fee. A lot of agents charge extra for staging or require sellers to hire their own stagers.”
Krupsaw says Redfin provides complete broker services to sellers, including professional photography, a four-color brochure and three-dimensional video tours.
“We have a targeted marketing program because we know which buyers are on our site looking at properties in a particular price range or a specific neighborhood and we can e-mail those buyers about our listings,” Krupsaw says.
David Miramontes, a home seller in Brightwood who sold his home with the help of Khosh, says he chose Redfin not only because of the significantly reduced fee but also because of their high level of electronic engagement with buyers and sellers.
“It was extremely easy to use the customer dashboard to know in real time who’s looking at the property and to schedule showings,” Miramontes says. “There’s even a place on the dashboard for buyers’ agents to leave feedback on my house. Sam and I communicated easily mostly through text messages or through the dashboard, and my home was sold within 10 days.”
Miramontes also received staging advice from Redfin and was extremely satisfied with his experience selling his home.
“I’ve sold multiple homes before, but this was the first time I felt I got my money’s worth for the commission fee,” Miramontes says.
Unlike most real estate agents, Redfin sales professionals get paid a salary and a bonus based on customer satisfaction surveys rather than receive a portion of the commission. Miramontes says the focus on customer satisfaction keeps Redfin agents working to get the highest price for sellers and to maintain a high level of communication.
Williams says that the Internet and technologically enhanced marketing tools have leveled out marketing costs so that selling a $1 million house costs the same as selling a less expensive listing, so she believes the agent’s fee should be the same regardless of the sales price.
“I did a lot of research and found that sellers were complaining about high fees, and I came up with the idea of a flat fee that would cover all the costs of marketing and still allow us to make a profit,” Williams says. “My goal is to gain market share, but I also think this is the future of the real estate industry.”
Williams leverages an open house app to capture data to figure out where potential buyers are coming from to target her marketing. In addition, she maintains efficiency by having all services such as photography and printing done by the staff. She says her listings sell within an average of four days for those priced in the $500,000 to $800,000 range and nine days for those priced at $1 million and up.
Stephens gives some of the credit for her quick sale to the staging of their home.
“It looked like something out of ‘House and Garden,’ ” she says.
Khosh says Redfin’s “seller dashboard” streamlines the sales process since it allows the listing agent and the sellers to see who is looking at a home online and how many are selecting it as a favorite, and offers an opportunity for buyer’s agents to provide feedback directly on the site.
While commissions are negotiable and real estate agents prefer not to discuss them other than with their clients, a common commission structure in the D.C. area is for the seller to pay 6 percent of the sales price as a fee that is split between the buyer’s agent and the listing agent. The DC Home Buzz and Redfin fees impact only the listing agent’s portion of the commission; buyer’s agents will be paid the full negotiated commission.
“Commission should not be the main reason to choose a Realtor whether you are a buyer or a seller,” says Mary Bayat, principal broker of Bayat Realty in Alexandria. “Being a Realtor is a professional job, and when I am looking for professional services such as a doctor or a lawyer I ask around to find out who provides the best services, not what they charge. Someone who provides the best service should earn the best fee.”
Stephens says she and her husband were equally interested in Williams’s ability to provide excellent home staging services and marketing as they were in her flat fee. She says some people feel that a lower fee means you will receive a lower service, but that wasn’t true of their experience.
“Flat fees have been around for a long time, but the majority of clients choose to work with someone because of their past experience or a friend’s past experience with an agent or a particular company,” says Nicholas Lagos, broker/owner of Century 21 Gawen Realty in Arlington. “Consumers need to be able to know what they need to get their home sold and know whether they’ll get that or not. There are good agents out there and others that cut corners regardless of the fee package.”
Lagos says that many agents negotiate their fees depending on the circumstances of a particular transaction and the market.
“Notwithstanding how disruptive technology can be and has been in diverse sectors, real estate agents for the most part have been able to sustain their commissions over time and throughout boom and bust cycles,” says Nicolas P. Retsinas, a senior lecturer in Real Estate at the Harvard Business School and Director Emeritus of Harvard University’s Joint Center for Housing Studies. “This latest initiative will once again test the power of consumers to negotiate better prices.”
Krupsaw says Redfin evaluates whether to continue its 1 percent commission strategy in the D.C. region on a monthly basis. She says the company’s listings increased 100 percent in the fourth quarter of 2014 compared to the fourth quarter of 2013.
Real estate brokerages have by necessity adapted to a changing industry engendered by new technology and online access of buyers and sellers to more information than ever before. But whether flat fee or reduced percentage commissions will become the norm remains to be seen.
Lagos says that offering a low fee will work best when the market is particularly brisk so that real estate agents can earn enough income through multiple listings, but he thinks it will be less popular when homes linger on the market. Real estate agents’ expenses can mount the longer a home stays on the market, which ultimately cuts into their profit from the sale.
“Ultimately, consumers need to do their research and decide what’s right for themselves in terms of which agent and which company to work with,” Lagos says.
Michele Lerner is a freelance writer.