In this age of mobile technologies and financial distress, some real estate brokers are finding that maintaining large offices can be more of a burden than an asset.
Real estate industry veteran Larry Whited hopped aboard the virtual office bandwagon years ago — he launched WebMLS.net in 2003 as a full-service, low-cost, real estate brokerage company that allows agents to work from home.
Now, he is rolling out a franchise model called maxUnet that seeks to replicate this virtual-office real estate brokerage model on a larger scale.
The WebMLS.net model offers four commission plans for sellers, which range from 2 percent of the sale price of the home plus $500, to 5 percent of the sale price of the home. The commission options are based on the amount of compensation that the client chooses to offer to the broker who brings in a buyer for the property — this can range from 1 percent to 3 percent of the sale price.
Under the maxUnet franchise model, too, franchisees can offer commission rates as low as 2 percent for seller clients — and franchisees have flexibility in setting the range of rates for service.
"I’ve eliminated the most useless thing there is, and that’s the office," said Whited, a 36-year real estate industry veteran. He served in the Marine Corps and worked in the computer industry before he found his career in real estate. By eliminating offices and lowering overhead, the company is able to lower its fees, he said.
It was during the 1980s that Whited "started preaching reduced commissions — I couldn’t imagine why people so easily paid 7 percent as property values went up. I was a voice in the wilderness," he said.
A conversation with an Englishman in the 1970s planted the seed in his mind about lowering real estate commission rates in the U.S. — the man informed him that commission rates were far lower in England, as agents there handled mostly the essentials of the transaction, such as the paperwork.
Whited worked for RE/MAX for about 14 years, and it was while he was with RE/MAX that he started to question the need for real estate brokerage offices.
"The only time I went there was to drop (off) a commission check after closing. I began to wonder, ‘Why am I paying for this office?’ It’s unnecessary overhead. What I saw was that only the losers hung out in offices — the top producers were out in the field," he said.
Clients, he said, don’t seem to care about whether agents work from a home office. "Usually families make the most decisions around the kitchen table — at their home. They (sign) the contract … sitting at their kitchen table," he said.
In 2006 — the peak of the housing market — West Chester, Ohio-based WebMLS.net had grown to about 147 agents and handled about 1,000 transactions. With the chill in the real estate market and economy in general, the agent count has slipped to a current level of about 110 agents, Whited said.
For the maxUnet model, Whited selected a technology vendor that offers an integrated system connecting franchisees and their agents with multiple listing service data and other business tools.
As an alternative to office meetings, Whited has lined up other vendors that provide webinars and conference calls.
He said he expects the first franchise to launch in January, with plans to grow the network within Ohio before launching elsewhere — probably in contiguous states like Pennsylvania and Michigan, he said.
Under the maxUnet franchise model, franchisees will pay a monthly contribution to a company advertising fund. To lock in the cheapest commission rates, seller clients are asked to pay a $500 nonrefundable "list fee" that agents can use to cover their costs to list the property.
A franchise proposal states that the initial cost is $10,000 to purchase a maxUnet franchise, with an additional $9,000 cost to assist local advertising and an additional estimated startup cost of $6,000 to cover expenses such as technology, stationary, licensing, and membership in a local real estate board and MLS.
There are also monthly costs for franchisees associated with the brand’s ad fund and technology platform, and franchise royalty fees that amount to 25 percent of the broker fee per transaction closed, or a $100 minimum.
Companies that rely on high commission rates these days are like "dinosaurs waiting for the Ice Age to hit them," Whited said, adding, "The Ice Age is this economic downturn we’re in. (The market is) going to stay at the bottom a long time. It’s a whole new reality.
"Everything that has happened to banks and title companies and lenders is going to happen to real estate companies. There are going to be a lot of companies gone."
Real estate commissions can trend up during a downturn, Whited said, but he believes there are limits to what consumers are willing to pay when property values are drastically shrinking.
"In my career I’m going to see 2 percent commission (become the norm)," he said, with 1 percent to the listing broker and 1 percent to the buyer’s broker.
"I believe it’s going to happen sooner rather than later."
Editor’s note: What is the future of real estate brokerage? Participate in the Inman News Roadmap to Recovery project. Click here for details.
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