Los Altos Real Estate Blog

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ZIP Realty ending commission rebates...Redfin cutting back...my advice for buyers.

In the Silicon Valley market, many buyers will make a request when they interview a buyers agent; can you give a commission rebate?  What goes through the minds of these buyers is that agents make a fortune from their commissions.  The perception from buyers is that an agent gets 3% of the sale of a $1 million home and walks away with $30,000.  Nothing could be further from the truth and Zip Realty and Redfin are admitting that in the strongest possible way.

ZIP Realty has cancelled all buyer rebates as of October because they can no longer offer them and remain profitable.  Just so we're clear, ZIP Realty can't be profitable offering buyer rebates.  The message to buyers is "commissions are what they are so real estate companies can remain in business".  The decision by ZIP Realty to end commission rebates is driven by the fact that the industry standard 3% commission exists because it's what companies need to charge to remain profitable.

In the news as well yesterday was the announcement from Redfin that they would reduce the discount they offer from 1.5% to 1%.  Since Redfin has a slightly different business model without traditional real estate offices, they may be able to afford this change and still stay in business.  However, the bottom line is that discounts hurt their business.  Operating with lower margins will only work for so long and trying to make it up "in volume" is a business myth.  As far as I'm concerned, the reality is that...

You either get full service or no service.  There may be varying degrees of "full service" and I strive to offer services that far exceed what the typical REALTOR® provides.  However, the idea that a reduced-fee company can offer anything more than assistance with paperwork is proven over and over as a joke.  The companies that start off with grand dreams of offering full service at discount prices always end up changing their fees to stay alive or just go out of business.

My advice for buyers is: stop asking for discounts.  The seller is paying the commission and a REALTOR® will do more to get you a good deal than you could ever save getting a few commission dollars back.   The value a REALTOR® brings to the negotiating table far exceeds savings from a rebate.  Our expertise in the market, from how many offers a home gets to what terms and conditions are working in the current market, is what will get you the best deal.  Let us do our jobs for you and we can assure you, you'll walk away happy.  That's my promise to my clients and I strive to get the best possible price in every situation.  Let us do our jobs and we'll stay in business to handle all those referrals you send us because we did such a good job for you.

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 Bryan Robertson, CEO | T: 650.799.9951 | Email: bryan@catarra-re.com | Website: http://www.BryanRobertsonHomes.com |CA BRE# 01191946 | Catarra Real Estate, Inc  | 171 Main St #220 | Los Altos, CA 94022

 

 

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Comment balloon 15 commentsBryan Robertson • July 02 2011 06:21PM

Comments

Bryan - Thank you. So many folks don't understand how the RE Business works.  I'm not sure what the IRS currently reports the Real Estate Professional makes but, I would guess people would be shocked. They don't realize we pay for all our gas, insurance, marketing, office space, phones, printer paper, computers, staples, etc.  We only get to keep a portion of the commission and our write offs of our net profit are huge which is one reason why many people don't stay in the business. There are no paid vacations (if you get one at all), no insurance, no sick days, etc. There isthe occasional breakfast or lunch.

I'm not complaining. I love what I do which is why I do it. But, it isn't a walk in the park. It's truly about the people and helping them. I could only do full service because I believe that's what it takes.

I've had a couple buyers purchase homes unrepresented and they saved nothing. Generally, the listing agent, builder, and the seller would rather them have a buyer's agent involved in the transaction as well.

I also don't think people realize that Realtor's go to great lengths to make sure information about a house represented is correctly. Yes, there are rules and guidelines we follow but, we do our best to report accurate information so buyer's know what they're getting.

 

 

Posted by Carla Freund, Raleigh - Cary Triangle Real Estate 919-602-8489 (Keller Williams Preferred Realty) about 7 years ago

Rebates will probably continue to be a big issue this year. The problem with a traditional agent or broker offering a rebate is that while it may attract an incremental client or two, you may end up forced to rebate or discount to all clients. I'm not sure there is more margin to be sliced off.

Suggested.

Posted by Leslie Ebersole, I help brokers build businesses they love. (Swanepoel T3 Group) about 7 years ago

Profit margins are definitely thin across the board these days.  It's not surprising they are having to cut back.

Posted by Rodney Mason, FHA 203(k) & HomeStyle Renovation-AL,FL,GA, SC, TN (On Q Financial) about 7 years ago

I'ts about time this happened and that RedFin and Zip Realty realize it's not that easy to cover the costs of doing business in this business, particularly if you're discounting.

I met with a VERY motivated seller this week - motivated by his house sitting on the market with a discount broker and not selling and now he has a worn out, expired listing.

Posted by Allen 2222 about 7 years ago

Bryan - thank you.  I recently was slammed on Trulia for writing something to a builder regardig his choice to offer only 1% & not expecting the Realtor to ask for more.  A Broker slammed me saying I think to traditionally and the consumer shouldn't be to blame for my inability to operate with smaller margins. The Broker is a Broker, but is primarily an investor so yes, he makes money from an alternative stream.  Good for him.  But he shouldn't be dictating that ALL real estate agents should cut their commissions since everyboy does their own research anyway. Egads; so not true!

Posted by Cathy Criado, Making Real Estate Profitable (Criado Realty ) about 7 years ago

Hi Bryan,

Interesting post.

Zip shut down a big outfit in our town, but I did not realize they also are changing their fee structure. Redfin is annoying because the put the discount in huge red letters on every single listing. Only 13% of Redfin offers get to closing. That tells you something!

Phil

Posted by Phil Leng, Phil Leng - Retired (Retired) about 7 years ago

Bryan, this is right on target.  It goes back to the principle: You get what you pay for!

Posted by Menlo Park Real Estate and Homes for Sale, WendeByTheBay.com - 650.504.0219 - SF Peninsula (Wende Schoof) about 7 years ago

Carla -You hit on some key points that I wish buyers would understand.  I think they do on some level but choose to ignore it.  The most important factor a REALTOR brings to the table is discovering what is "real" about a house.  So often the sellers don't have all the facts or things are disclosed and the buyer needs clarification to make sure they don't get something that will be a problem down the road.  That's a major part of what we do.

Leslie - I get asked for rebates and I always say "No".  I earn my commission with each transaction I do and my clients walk away satisfied.  If someone wants to press for a discount, they can do it elsewhere.

Rodney - Very few agents are making huge commissions.  The cost of business is high.

Alison - That's the thing, without a good agent to market the home, it sits.  A lot of sellers think all you need to do is put the home on the MLS and it'll sell.  That may be true sometimes but it's rare.  Agents must invest in substantial marketing and it costs money.

Cathy -Builders who don't factor in a full commission don't last.  I've seen it time and time again.  The best builderings in Silicon Valley all offer full commissions and they get a lot of support from the local agents as a result.

Phil - Redfin is truly a paperwork handler.  While I think the data on their site is great, the services offered by their "agents" are extremely limited.  They tried a different business model and it didn't work.

Posted by Bryan Robertson, Broker, Author, Speaker (Intero Real Estate) about 7 years ago

Wende - Exactly!  Thanks!

Posted by Bryan Robertson, Broker, Author, Speaker (Intero Real Estate) about 7 years ago

I want to say that you did a really excellent job of summing this issue into your blog. I could go on and on and on and no one would even want to try to read it. 

It is either full service or no service and I completely agree. The consumer has to make a choice. I work for a full service broker and I have no idea how to cut back on my service to a client. I think many consumers have this weird idea that all agents are rich and there is plenty of money just floating around. As a majority of agents know that the individual agent is the last to eat from any commission money. As agents we have to pay all expenses ( the list is too long to mention in detail) and get NO salary from some entity who would also reimburse all of our out of pocket expenses. Maybe consumer education would help this issue.

My broker won't allow us to give rebates or as some here say kickbacks to the buyer. The only situation where a reduction of rate might occur is if a client is selling their home and turning around and buying another home using the same agent. The home that is being sold would have to have a large price tag on it. The reduction would be no more than 1% from the selling side commission as if a seller does not offer full commission to buyers agents the home will never sell. 

Thanks for a excellent blog.

I appreciate all of your kind comments on my blogs and helpful assistance you provide to me..

bg 

Posted by Robert Bob Gilbert, Your Katy TX ( West of Houston) Real Estate Expert (Berkshire Hathaway HomeServices Anderson Properties) about 7 years ago

One of the key problems with the Zip model is that every thing came out of the buyers hide. I was once a zip agent and made $2800 on a $450,000 home sale. So their agents left and one thing they couldn't do was make money without agents.

Posted by Maya Swamy, Ph.D. Long Beach, CA - fundsavailable.com (Funds Available) about 7 years ago

Redfin is to buyers what Help U Sell was to sellers.....not sure what has happened to the Help U Sell franchise but I've seen a lot of their offices close...and I think they filed for BK...but not sure!

"Operating with lower margins will only work for so long and trying to make it up "in volume" is a business myth."  Well Said!

Posted by Aida Pinto, Real Estate Broker (562) 884-6196 (United Associated Brokers) about 7 years ago

Bob -It would be great if we could offer clients a simple perspective on how little the average agent receives from each commission after splits, business costs, etc.  What's the "real" paycheck.  It might help put it into perspective when compared to their salary.

Maya -With a "normal" commission on that deal, you would have gotten over $13,000 which might have been about $6000 after splits and business costs.  That's why the ZIP model doesn't work.

Aida - Discount brokerages always crop up in boom times because selling is easier.  However, in a normal market, they can't survive.

Posted by Bryan Robertson, Broker, Author, Speaker (Intero Real Estate) about 7 years ago

Hi Bryan, to be clear Redfin has only changed the amount of our commission that we refund in Boston. In Los Altos it is still up to a 50% refund. 

Posted by Matt Goyer (Redfin) about 7 years ago

I read today the Nextdoor discussion about this. Some agents or companies openly offer rebates or discounted commission. Here is my thought about it: you get what you pay for. If you pay a discounted price, you can not expect the excellent service.

Posted by Inna Ivchenko, Realtor® • Green • GRI • HAFA • PSC Calabasas CA (Barcode Properties) over 3 years ago

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