Barbara is a secret agent in a new real estate network. At Barbara’s request, her last name will not appear in this article because she does not want other agents to know about this affiliation. Barbara is not alone.

Barbara is a secret agent in a new real estate network. At Barbara’s request, her last name will not appear in this article because she does not want other agents to know about this affiliation. Barbara is not alone. Other high-profile agents, too, have gone undercover to join the network.

This is not a story about a shadowy underworld of cloak-and-dagger operatives or international intrigue — it is all about agents who want to offer consumer rebates for real estate services without revealing to their brokers and other agents that they are working at discounted rates.

Barbara has agreed to rebate a portion of her commission income to buyer and seller clients she meets through her participation in this upstart real estate discount network, called Realty Legacy. Through a contract agreement with clients, she agrees to refund sellers at least 1.5 percent of the sales price of their homes after the real estate sale is settled. For buyers, she draws up a contract to refund all of the commission she receives above 1.5 percent of the home’s selling price.

So what’s the big secret?

Some brokers do not allow their agents to discount real estate commissions without their approval, and some brokerages set specific limits on how low they are willing to go with commission rates for real estate services. Also, some agents worry that advertising a discounted commission rate in a multiple listing service will deter other agents from showing the house, as not all agents are willing to work at a discount rate. These agents could steer their clients away from these homes that offer a discount commission.

The Realty Legacy solution: Discount … and don’t tell.

“No other agent will know that any listing is or is not a Legacy listing,” according to the company’s Web site description. “Legacy properties look just like any other property in the neighborhood. Only the agent and the client know how much everyone is saving. All of the special refund arrangements are handled strictly between the (clients) and their agents, and all funds are paid outside of the settlement.”

According to Real Trends, a real estate research and information company, real estate commissions have hovered around the 5 percent range for the past several years. In a typical real estate transaction, there are two sides — a buyer’s side and a seller’s side — and the seller agrees to pay the listing agent’s company a percentage of the home’s selling price for service performed. The listing agent’s company shares a portion of this commission, usually about half of the amount, with the buyer agent’s company.

Additionally, agents typically have an arrangement with their brokers on commission revenue that they bring in for the company, and this sharing can vary widely: from a 50-50 split with their brokers to a 90-10 split (or more) in favor of agents.

Legacy Realty, which is available in Virginia, Maryland and Washington, D.C., keeps up appearances by handling the rebates apart from the typical real estate transaction process. Brokers and other agents are unaware that agents in the network are cutting their commissions because they all receive a typical commission share in the typical manner.

Home buyers who enter into a contract with a Legacy Realty agent receive a refund on any amount above 1.5 percent of the sales price that their agent receives for participating in the sales transaction. So if the Realty Legacy-referred agent receives 2.5 percent in the transaction, the buyer or buyers would receive a rebate of 1 percent of the sale price, for example.

Barbara doesn’t need to offer rebates. She has been in the business for about 30 years and is among the top 2 percent of agents nationwide for the volume of business she handles. Her participation in the network is not entirely altruistic — it’s just a way to drum up some new business. “It’s another source of referrals. The more referrals you have the more money you can make.”

Consumers are definitely looking for deals these days, she noted, and the Internet has contributed to this drive for lower rates. Several of the clients who Barbara has met through Realty Legacy referrals are interested in working with her on both the sale of their existing home and the purchase of a new home, she said, and the clients will receive the rebate discount for both parts of the real estate transaction that she handles.

“This is a legal way to rebate your clients,” Barbara said. “It’s after the fact — that way it’s not that I’m taking any money out of my broker’s pocket at all. It doesn’t’ take any money out of the other agents’ pockets. That’s the beauty of this — you advertise whatever commission split is the norm for your area.” She said that if she reveals her identity to other agents, she is worried that real estate companies might try to stamp out the practice.

“I’m afraid of the ‘big boxes’ saying, ‘No, you can’t do this.’ I don’t want to be a test case,” she said. The industry attaches a stigma to discount real estate listings, and some agents are more likely to encourage clients to buy homes that offer those agents a higher rate of commission, Barbara added. “Don’t think it’s not about commission dollars — it is.”

Ron Patterson, a longtime Realtor who founded Realty Legacy, said the network has been wildly popular since its launch a few weeks ago, generating about 120 contracts among its founding group of 12 agents.

Patterson, an associate broker at a Long & Foster office in Alexandria, Va., said he reached out to a core group of agents who he knows personally in forming the group, and he has plans to expand the network to other areas. Agents from Long & Foster, Weichert and Prudential are among those who are affiliated with the network, he said.

“I think eventually it will spread to all major markets around the country,” Patterson said. He has applied for patents on the intellectual property and related technology of the referral network.

“It has really exploded much more than we thought it would and that’s without any publicity,” he said. Clients who choose to list a property with an agent in the Realty Legacy network are assigned to an agent in the network. To participate in the network, agents pay a $200 application fee and a $300 fee to receive referrals for five ZIP code areas for a six-month period. Participating agents can also pay $50 more every six months for each additional ZIP code.

Additionally, agents pay the company a $100 one-time fee for each completed real estate transaction that is related to a Realty Legacy referral.

Clients pay a fee of $200 to participate in the referral network, or $300 if they plan to both buy and sell a house with the referred real estate agent. Clients are matched to an agent within three days. This fee will be fully refunded, Patterson said, if the clients choose not to complete a transaction with the referred agent.

The company requests that consumers enter their credit card information to pay up-front for the referral network services, and Patterson said this is to help ensure that the inquiries are from serious real estate clients.

At the foundation of Realty Legacy is Patterson’s belief that house-price increases make it difficult to justify standard real estate commission rates. “On an $800,000 sale, sellers are paying $50,000 to get it done and that’s stupid,” he said.

Patterson said that because of concerns that other agents will boycott the listings of Realty Legacy-affiliated agents, the company is keeping a low profile on its affiliates. “It has to be done quietly,” he said. “The confidentiality of this makes it work.”

Even so, Patterson expects that word will spread quickly about the discount network. “There’s no question people will find out who’s doing it and who’s not doing it,” he said. “It has already raised a few eyebrows in my office,” as the network is pulling in lots of clients.

The timing is right for the network, he said, because home prices have reached a level where rebates make a lot of sense. “It’s about time it happened.” Patterson has spent 25 years in the real estate business and practiced law for 10 years before that.

Patterson and Barbara said the network is not for every agent. Those agents who already have a lot of business and have very favorable commission splits with their brokers are the most likely to participate in the network, they said.

***

Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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