In the run-up to a much-anticipated government workshop on the competitiveness of real estate, industry trade groups have argued that competition is robust. But the view is different from where flat-fee brokerage Trelora sits.
“We have had bricks thrown through car windows, cars egged and hate mail sent to sellers,” Trelora CEO Joshua Hunt told moderators on the second of three planned panel sessions at Tuesday’s live-streamed public workshop held by the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ).
“I have a list of over 719 brokerages in Denver alone that have flat out said ‘we won’t show Trelora listings.’ We tell sellers 40 percent of agents push hard not to sell your home if you don’t offer a 2.8 percent to 3 percent commission.”
Trelora charges sellers a listing fee of $2,500, plus whatever compensation the seller chooses to offer to buyer’s agents. Sellers typically offer buyer’s agents less than the going rate, often on the advice of Trelora.
If Trelora believes a seller “can get away with” only offering $2,500 to buyer’s agents, then the brokerage will advise a client to do so, Hunt has previously told Inman. The brokerage charges all buyers a flat fee of $2,500 to $3,000, depending on the service level.
“Over 80 percent of our business comes from repeat and referral business. If you have a great experience and save $30,000, you tell people,” Hunt said.
Agents who steer clients away from Trelora-listed properties do so “because they don’t have the skill set or the value proposition to say ‘here’s why you would want to pay me more than $2,500,'” he added. He lamented that because the majority of agents are independent contractors, brokers and franchisors he’d complained to had washed their hands of agents’ steering behavior.
Trelora’s CEO was one of four panelists speaking on the “Developments in Real Estate Fee and Service Models” session at today’s workshop. The other three were Simon Chen, president and CEO of ERA Franchise Systems and representing brokerage powerhouse Realogy; Eric Eckardt, U.S. CEO of flat-fee brokerage Purplebricks; and Khalil Alexander El-Ghoul, principal broker of discount brokerage Glass House Real Estate in the Washington, D.C. metro area.
Trelora and Glass House’s agents are employees. Purplebricks agents are independent contractors. At ERA, brokerages are independently-owned and operated franchise affiliates, so ERA doesn’t stipulate how agents are compensated or how consumers are charged, according to Chen. He estimated that about a quarter of both independently-owned and company-owned brokerages at Realogy offer discount models.
The panelists seemed to agree that consumers, especially buyers, did not seem to understand how paying for real estate services works. Some consumers seem to think that the buyer’s agent and the listing (or seller’s) agent always get the exact same commission, according to El-Ghoul.
In other cases, buyer’s agents often promote themselves as “free” because their commission is coming from the listing agent, Hunt said. Consumers also don’t understand that commissions are negotiable and that an agent with 30 years experience gets the same commission as one that got their license yesterday, he added. Some agents even tell their sellers that it’s illegal to pay them less than a 3 percent commission, Hunt said.
“When a consumer buys a home, they’re also buying a commission. We believe nobody gets paid until the buyer brings the money to the table. Yet, when I go to Zillow, Redfin and realtor.com, I can’t find the commissions anywhere as a buyer. I think much of the data through county records and these different portals, while it’s exponential in its growth, [the industry] is still withholding pertinent information from consumers,” Hunt said.
Hunt noted that MLSs have several fields that aren’t visible to consumers, including broker remarks and agent and broker compensation. Trelora has made waves in the industry by outing commission offers on its website, though because of multiple listing service rules it can only show the data to registered users.
“Truth be told, if we just made all this truly transparent and there was a single MLS where you could see commissions and you could see all the data in a way that consumers could see it and access it and control it, this industry would shift overnight,” Hunt said.
“I don’t know if it’s going to happen, but I pray for it.”
Average commission rates nationally have been between 5.02 percent and 5.42 percent every year between 2000 and 2017, rising when the number of listings increases relative to the number of Realtors and falling when listings decline relative to the number of Realtors, according to real estate research firm Real Trends. There’s a 7 percent difference between that high and low.
Property values have gone up about 45 percent in the last 10 years with some markets experiencing an 80 percent or 100 percent rise, according to Hunt. That means agents are making higher wages with half the work considering the advancements in technology, he said.
Hunt also pointed out that some 60 MLSs don’t allow a brokerage to join if the brokerage is not a member of the National Association of Realtors.
In Colorado, for instance, the Pikes Peak Association of Realtors’ MLS will not accept Trelora, a non-Realtor brokerage, as a subscriber, according to Hunt. Neighboring MLS REcolorado has let Trelora join, but for a higher fee than Realtor brokerages. Hunt’s brokerage, which used to be called Joshua Tree Realty, left NAR after a commission dispute and changed the firm’s name to Trelora (“Realtor” scrambled).
Eckardt pointed out that consumers know immediately what they’re paying for at Purplebricks because of its flat-fee model. “That discussion is taken off the table,” he said, adding “It’s hard to believe that we’re in 2018, and the average commission fee is still between 5 and 6 percent.”
El-Ghoul noted that 10 years ago the most common commission for one side of a deal in the D.C.-metro area was 3 percent, and now it’s 2.5 percent, which he said was “a real change.” His own brokerage offers buyers a 2 percent cash rebate and charges sellers a 1.5 percent listing fee. In exchange, consumers do some of the work an agent would do, such as identifying the homes they like or getting pre-approved, El-Ghoul said. By contrast, Purplebricks and Trelora both say they offer “full service” to consumers without requiring extra work from them.
Increased competition has put pressures on commissions, “which is healthy and fine,” Chen said. That pressure has resulted in brokerages looking at ways to increase their efficiency, particularly through the growth of real estate teams, which allow agents to do hundreds of transactions per year with the help of specialists such as transaction coordinators, he said.
“We think competition is forcing us to up our game,” Chen said.
Alternative or low-fee models are definitely claiming market share, according to Chen. Nontraditional models are actually the majority of the marketplace now, if one looks at data from Real Trends or T3 Sixty, he said, adding that the line is becoming “blurred” between models, which is why a lot of them are being called “hybrids.”
“It seems the tipping point has been reached in the marketplace … The consumer is now coming to us and saying if I’m giving you X, are you going to give me X? And if not, why?” Chen said.
On the other hand, he said he knows an agent who charges a 7 percent commission, and she has people come to her and point out that other agents charge 5 percent or 6 percent.
“She says, very cutely, ‘They should.’ She justifies 7 percent with a higher level of service and a higher level of engagement. And she’s one of our most productive agents,” he said.
Still, Trelora’s Hunt predicted that commissions would be cut in half over the next five or six years.
“If either sellers and their agents could no longer offer buyer agent commissions and/or they were made insanely transparent, this market would have a rapid shift towards a better situation for competition and for the consumer’s benefit,” he said.
Editor’s note: This story has been updated.