Redfin might have disrupted the real estate space by offering lower commissions for sellers, but Federated Realty of Washington D.C. wants to take that number even lower.
Rather than applying a standard 3 percent selling commission, or even Redfin’s 1.5 percent, the lean brokerage operates on a $1,000 flat fee structure — no matter the price of the home.
Federated collects the fee when the home is sold. The firm guarantees listing placement on over 200 websites, all while offering an in-office agent dedicated to the sale. Homeowners who aren’t completely satisfied can cancel at any time via the opt out clause.
Prior to introduction, Federated Realty sold on behalf of developers in the D.C. metro, helping inspire this new model for homeowners.
In order to gain more insight on this unique model and its tech-based benefits, Inman spoke with Artin Afsharjavan, CEO of Afshar Javan Capital Management, the principal investor of Federated Realty.
Afsharjavan’s comments have been edited for clarity.
How did Federated Realty grow into a residential brokerage?
The creation from this concept came from our background in real estate. We’ve been in real state for quite a few years, buying and selling homes – the same business you see on television. Because we were big, we were able to use the economies of scale to reduce the cost of selling a home. Initially, when we started, we used the same model, but as the margins of flipping homes became tighter and tighter as the economy rebounded, we had to find ways to save on our expenses. There are only so many ways to save, so we realized we had to save on the unnecessary cost of commissions.
Unlike the buying process, the selling process is substantially easier. Most of it is done electronically. By streamlining the process of selling, it doesn’t have to be as expensive as 3 percent, and we can take that model and introduce it to the public.
How do agents at your brokerage operate?
Part of our model, which is so important, is that our agents are salaried and incentivized with bonuses. Because they are focused on the transaction rather than squeezing a deal, it allows them to focus on the business itself. It’s more efficient having someone behind a desk, ready to take phone calls on a regular cycle in terms of the business schedule. People are tired of calling their agent, who sends documents from their car.
[Many agents] haven’t had enough transactional volume to justify giving proper answers. You need to have that experience, because the industry changes on so many fronts – from financing to technology. Just because they’ve been doing this for 30 years doesn’t mean they have good advice to give to a seller today. Because of our model, our agents are able to understand the current trends and market.
We’re putting our clients first and using tech and data to make sure they are getting the right number.
How many agents do you have working on your team?
We only have seven, but that allows us to take on quite a bit of volume as we scale up. The advantage for our model is we are able to bring on the best agents with the best potential. We don’t need quantity, we need quality.
Our agents, on any given month, might experience more transactional volume than an agent at the average big-box company will see in 10 years.
Why $1,000?
It’s the lowest absolute that we can run a viable profitable business. If we can bring down that number, we will. We do not want there to be room for competition.
We’re trying to build a lean operation and focus more on efficiencies rather than the fluff of having a fancy office. With $1,000, we can be viable and profitable, so why not do it?
What are the other advantages Federal Realty offers?
We are fully tech-based, even using DocuSign. The amount of money on paper waste and printer amounts to be tens of millions nationally every year. Why not go straight to the tech portion? The consumer prefers it.
We don’t price a house until right before we’re about to list in terms of us as a developer. Why not do the same thing for a consumer?
The only thing we don’t beat them on is holding an open house. When we held open houses as developers, what we experienced was not surprising. How many of the homes sold because of open houses? Almost none. All they are trying to do is drum up business and capture more listings.
Any plans to expand past the D.C. metro area in the near future?
We’re not limiting ourselves to anything. Our hope is to be a national player in a very short period of time. The markets we’re going to enter next – I wish I knew. I think it’s a matter of organic growth. We’re going to see where the market wants us.
