If there’s any consolation prize for CRE’s tech laggard status, it’s that they don’t have to deal with commission wars like the residential sector does. Data standards, mature online portals, electronic transaction management have dramatically reduced the cost of residential transactions. So it’s natural for consumers to think that greater efficiency should translate to lower costs.
But commissions seem stubbornly stable in most markets. And the complaints directed at residential agents are getting louder.
Since many residential trends seem to end up being adopted on the commercial side, here’s a peek into the future of real estate commissions.
Reduced Commission Rates
Redfin, a discount residential brokerage, has been around for several years. While not the brokerage killer it was predicted to be, it’s still attracting big investors. And consumers like saving about half the average commission rate.
A combination of user education and using the latest technology to efficiently manage transactions translates to reduced agent time thus justifying the substantially lower commissions it pays its agents. Redfin also offers benefits packages plus performance bonuses.
For Redfin agents, the attraction is a massive platform that generates leads. And as long as the leads keep coming, agents have the potential to make more thanks to higher volume.
Like Refin, NYC’s TripleMint is using a combination of salary, commissions, customer service bonuses and benefits packages to attract high quality agents for the long term. But they’ve added equity into the mix rewarding agents who stay at least a year with a share in the company.
Rather than promise lower commissions for buyers and sellers, TripleMint promises an outstanding customer experience plus some perks like a concierge service. To make sure their agents can provide that experience, TripleMint does all the lead gen work. That gives agents time to better serve the clients. Plus the agent’s ownership participation will foster, the founders believe, loyalty and an overall sense of collaboration for the greater good.
Flat Rate Commissions
Brokerages offering real estate services at flat rates have been around for decades. And none of them seem to have gained any traction. But companies like Redefy think now might be their time.
Redefy believes that consumers should get a break on the listing side – the side that technology has made cheaper to execute but which still commands full sized commissions. So owners play a flat fee of about $2,500 depending on the market and cost of the home for submitting their listing.
Agents get in on the flat rate, too, each receiving a standard fee for bringing in a listing. Salaried “inside agents” take care of the paperwork. And all agents are subject to quotas implying volume is part of the company’s profit equation.
Owners still pay commissions to the buyer’s agents– including Redefy agents – which is, apparently, a task perceived to have more value.
Rich clients, it turns out, are just like the rest of us. They don’t like agents getting such a big cut for doing “nothing” either. To address that issue, residential agents that serve high end clients have started billing by the hour. If it catches on, we’ll be able to substitute real estate agent in all those jokes about lawyers’ inflated billing hours.
There’s always a segment of the population who would just rather do it themselves. In the case of home sales, online portals like Zillow and Trulia make it easy for home owners to list plus take advantage of the huge exposure these sites offer.
They can also use the price estimator tools to have a better shot at pricing their house reasonably. And though they may still have to pay a buyer’s agent if one’s involved – and there are plenty of agents willing to make an offer on a FSBO listing – at the very least, DIY listings cuts the overall commission costs in half.
On the commercial side there’s already a burgeoning number of DIY listing sites – so it’s not like commercial owners aren’t thinking about ditching agents either. One is Craig’s List where you can list for free. It even lets owners warn that they don’t want to deal with agents. Craig’s List is just for small space users, either. Depending on the market, you’ll find buildings and spaces of all sizes along with a very active user base.
And don’t think that DIY means a bad deal. On the residential side, there are competing statistics. The National Association of Realtors claims FSBO types leave around $40K on the table. But other data shows FSBO actually sell for more and no one has to pay a commission.