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Competition ramps up pressure on real estate commissions


When Harvey Ferguson bought a townhouse in late August, his Realtor gave back $1,900 of the real estate commission as a rebate.

Ferguson, an airline pilot, hired Redfin’s Palm Beach County office as his buyer’s agent mainly because the Seattle-based brokerage offers a discount. Ferguson received the rebate as a credit toward closing costs on the $318,000 home in Palm Beach Gardens.

“That went a long way toward helping me close,” Ferguson said. “That’s money out of the Realtor’s pocket, not mine.”

Among buyers and sellers of real estate, haggling over commissions has become something of the norm, and the once-standard 6 percent fee is fading. A number of real estate startups market discounted commissions, and even established Realtors are feeling the pressure.

For consumers, the stakes are high: Selling a $300,000 home with a 6 percent commission — 3 percent to the listing agent, 3 percent to the buyer’s agent — means paying $18,000 in fees.

“You’re looking at a massive opportunity to save big money,” said Steve Udelson, president of Owners.com, a discount brokerage that launched last year.

Atlanta-based Owners.com is expanding to Florida, and the brokerage targets homebuyers by telling them that, in a deal where the buyer’s agent gets a 3 percent commission, Owners.com will give half to the buyer. On a $300,000 sale, the rebate amounts to $4,500.

Real estate agents have proven remarkably resilient, despite predictions that Realtors would go the way of travel agents and stockbrokers. Discounters such as Redfin have chipped away at the industry rather than revolutionizing it. And after the housing crash caused hundreds of thousands of agents to flee the industry, Realtors’ ranks have rebounded in recent years.

Still, price pressure seems to be mounting. In an era when buyers run their own home searches on Realtor.com and Zillow, buyer agents no longer are worth full commission, Udelson said.

“Consumers are doing a significant part of the agent’s job, if you were to compare it to a pre-Internet world,” he said. “The way we’re thinking about it is getting the service level right, which for today’s modern consumer means a lower commission.”

Consumers have grown accustomed to discounts on everything from car insurance to stock trades, and home buyers and sellers have begun to ask Realtors for a bargain, too. Fully 60 percent of consumers surveyed by Seattle-based Redfin this summer received some sort of discount on their real estate commissions.

While Redfin’s study didn’t survey consumers in Florida, Tammy Trenholm, a Redfin agent in Jupiter, said the bargain-hunting trend holds true here.

“It seems like everyone is looking for a deal,” Trenholm said.

Realogy Corp., the nation’s largest brokerage, says commissions have been hovering in the 5 percent range for years. In another measure, REAL Trends, a consulting and research firm in Denver, says the average commission nationwide was 5.18 percent in 2015.

That’s above the boomtime low of 5.02 percent in 2005, but REAL Trends president Steve Murray sees pressure on commissions.

“The single most important factor in declining commission rates is competition among traditional agents for scarce listings,” Murray said.

Jim Weix, a broker at The Real Estate Co. in Stuart, agreed.

“Right now, it’s a seller’s market,” Weix said. “Any time listings are hard to get, there’s going to be a tendency by the real estate community to offer discounts.”

Realtors outnumber homes for sale in Palm Beach County. The Realtors Association of the Palm Beaches has 15,000 members. At the end of July, 12,599 houses and condos were on the market in Palm Beach County.

Weix and other Realtors say the cheapest commission doesn’t always net the best deal for the consumer. After all, buyers and sellers rely on agents to negotiate price and navigate the process.

“If I’m a seller, the first thing I should be looking at is, ‘Which real estate agent or company can best sell my home?’” Weix said. “If all you’re looking at is the price, it’s probably not the best way of picking a Realtor.”

Paying more for an experienced agent with knowledge of the local market can pay off in the long run, Weix said.

But agents have become more willing to cut their commissions, said Michael Huegel, chief executive of Less Percent Real Estate of New Jersey.

“They don’t hold the line like they used to,” Huegel said. “Brokers and agents are starting to realize, ‘If I don’t change, the industry is going to pass me by.’”

Less Percent Real Estate in August expanded its discount model to Palm Beach County. Huegel likens his website to “a dating service” for sellers and agents.

Sellers anonymously solicit bids, and agents make their lowest offer. The typical commission is “in the low 4s,” Huegel said. Sell a house for $400,000 at a 5 percent commission, and brokerage fees total $20,000. Lower the commission to 4.25 percent, and brokerage fees fall to $17,000.

Huegel brings a mixed track record to the real estate industry. He filed Chapter 7 bankruptcy in 2014 and faced wage-and-hour suits and a breach-of-contract claim after the failure of a company he ran.

Real estate startups that focus on discounts have experienced mixed results. One such effort, Xome.com, launched in 2015 with a rebate model but died after less than a year. Even so, discounters see massive potential.

“There’s this ginormous savings opportunity that’s right there,” Udelson said.


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