Written by The Business Journal Staff
A lack of quality inventory is fueling an increasingly hot seller’s market for residential real estate in the Valley — and in the competition to get new listings, many local Realtors are offering better commission rates to sellers.
In June, SurveyMonkey contacted more than 2,000 people in eight major U.S. markets who had bought or sold a home in the past year. Sixty percent said their Realtor cut them a deal. The average discount: 41 percent off the typical 6 percent commission.
Redfin, a Seattle-based online real estate broker that charges sellers a thrifty 1.5 percent commission, paid for the survey.
Among survey participants who bought a home in the past year, 46 percent said their agent gave them a refund, rebate, closing cost contribution or other form of discount or rebate, with the average savings amounting to $3,693.
“The notion that so many people are saving so much money in fees is surprising because REAL Trends, a widely cited source for statistics on agent and broker commissions, reports that agents’ commissions have increased slightly in the past decade to 5.26 percent in 2015 from 5.02 percent in 2005,” a report attached to the survey stated.
“It’s possible that while commissions have increased, so has the frequency with which agents provide refunds, rebates, closing cost contributions and other forms of savings to their clients,” the report concluded.
Based on the survey, Redfin, which calls itself “the next-generation real estate brokerage,” concluded that one in four home sellers around the country now sell their property without the help of a traditional, full-service agent.
“While market forces are driving home prices up, innovation is helping to drive commissions and fees down,” said Nela Richardson, Redfin’s chief economist.
“These survey findings suggest that the industry is becoming more dependent on technology and less dependent on the local agent as the sole source of information about homes for sale,” Richardson added. “The fact that savings are so widespread indicates that agents and brokers are adapting by using technology to work more efficiently and charge less money.”
“Also contributing to a climate where agents are motivated to drop their fees could be the fact that more home sellers are choosing to forgo the help of a full-service agent,” the Redfin report noted. “Fifteen percent of people who sold a home in the past year used a limited-service agent and another 10 percent chose to forgo the help of an agent altogether.”
This is slightly higher than the latest figure reported by the National Association of Realtors, which said that in 2014, for-sale-by-owner (FSBO) transactions accounted for 8 percent of all home sales.
The report also noted that there appears to be a correlation between selling at a higher price point and selling without a full-service agent.
“People selling million-dollar-plus homes were the most likely to do so without an agent, and those selling homes for more than $500,000 were more likely than those selling for less to use a limited-service agent,” the report said.
The majority of area Realtors contacted this week by The Business Journal said they are willing to work with sellers who ask for sub-6 percent commission rates.
“In this tight market, there are only so many new listings available and the competition to get them can be pretty cut-throat,” said one Realtor, who asked not be identified because of concerns his comments would reflect poorly on his firm. “I’ve got to earn a living,” he said. “A 2 or 3 percent commission is better than no commission at all.”
Andy Nazaroff, CEO of Guarantee Real Estate, the area’s largest residential real estate firm, said commissions “are always negotiable.”
But Nazaroff was skeptical of the Redfin survey results. “Our local market always sees a trend of downward pressure on commissions in a seller’s market, but not anything like Redfin touts” in the recent survey, he said.
Nazaroff said commission rates “aren’t the only thing” a homeowner should look at when choosing an agent. “A home seller should consider the value the Realtor will bring and, at a minimum, look at their marketing plan, past sales history and customer reviews.”
Nazaroff added that “sometimes paying a little more” could net sellers “a better negotiator, more exposure to buyers and an all around better experience than a discount broker might bring.”
Patrick Conner, president of London Properties, agreed and added, “There always has been and there always will be real estate brokerages that offer discounted models. When markets are robust with tight inventory favoring a seller’s position, we have historically seen discount brokers pop up. Then, when the market turns, their model isn’t sustainable and they retreat.”
Conner said London Properties actually offers its customers a menu of different services based on their specific situation and needs.
“We have seven different listing programs for clients that start as low as 2 percent,” Conner said. “If a seller wants fewer services or perhaps thinks that they may even be able to find a buyer through their own efforts, then we have a program for that.”
Like many long-time real estate professionals — family-owned London Properties has been selling homes in the Valley for 45 years — Conner believes listing for a lower commission “matters much less to a seller than listing with a brokerage that can best market the property and negotiate the highest sales price.”
“In a real estate transaction, negotiating the initial sales price is just the first of numerous negotiations that take place throughout the 45 to 60 day transaction period,” Conner added. “Further negotiations arise from appraisals, inspections, inspection periods, disclosures, lender requirements, repair requests, occupancy dates, and the list goes on.”
“Some brokers who offer less are willing to work for less,” Conner added. “It’s a little like heart surgery. You don’t want the doctor who can do it the cheapest, you want the doctor who can do it the best.”