The Moehrl class action lawsuit focuses on a complaint that states the 6 percent commission is too high and that clients should have a say in the commission split — and agents aren’t too happy about it. Flat-fee discount brokerage Clever Real Estate is trying to meet everyone in the middle.
The Moehrl class action lawsuit recently filed against the National Association of Realtors (NAR) and four top franchises has shined a spotlight on the way commissions are determined and split between seller’s and buyer’s agents. Critics complain that the 6 percent commission is too high and that clients should have a say in the commission split.
A start-up flat-fee discount brokerage has created a model that achieves these goals without resorting to legal action or the chaos that might ensue. It preserves broker control of commissions, lowers the cost to consumers and delivers levels of service commensurate with how much brokerages are paid. In fact, should it succeed, it might disrupt the current system more than any lawsuit could.
Clever Real Estate, based in St. Louis, works directly with sellers and buyers who want to save money on the commissions they pay. It works with top shelf brokerages accustomed to a traditional commission split.
At the heart of Clever’s approach are local networks of real estate agents willing to work for less in return for a steady flow of referrals. Some Clever Partner Agents will also rebate up to 1 percent of the purchase price of a seller’s home, depending on the price and number of viewings.
How it works for sellers
Sellers typically pay commission fees from 4 percent to 6 percent. Clever homesellers pay a flat fee of $3,000 ($2,000 going to the listing agent, and $1,000 going to Clever) plus the buyer’s agent commission fee (typically 2 percent to 3 percent) if the home sells below $350,000.
If the home sells above $350,000, the seller pays a 1 percent listing fee (75 percent going to the listing agent, 25 percent going to Clever) plus the buyer’s agent commission fee.
Seller’s agents working with Clever provide the same service to Clever customers that they provide to their traditional customers, including the use of their branding when listing homes. Prospective buyers who might change their offers will never know that the seller was saving on commissions.
How it works for buyers
Homebuyers’ fees are paid by the seller in most transactions. Buyer’s agents who partner with Clever receive a 2 percent to 3 percent commission from the homeseller — and Clever charges the buyer’s agent 25 percent of the commission as a referral fee.
Successful real estate investor and tech-savvy entrepreneur Ben Mizes founded Clever two years ago and raised $1 million from private investors last fall. Now he is adding staff and building the agent networks.
Mizes is a man on a mission. When asked how he measures success, he doesn’t speak in terms of revenues or numbers of employees — he keeps his eyes on the big picture. “We’ve seen a drop in the average commission rates across the country, and I think Clever is going to play a role in accelerating that,” he told us.
Technology has changed the real estate business, but he believes that commissions have not kept up. “You still need an agent to help you with the inspection, the contract and the paperwork, so the agent still has value. But the amount of value they are supplying isn’t justified by the commission they are receiving,” said Mize in an interview taped last May.
On the other hand, “When we refer a homeowner to one of our partner agents, they are expected to provide the same level of service they provide to any of their clients. If this isn’t the case, it will show up in the reviews of our partner agents, and we will stop sending them business,” he told me.
Until now, Mizes has been more focused on sellers than buyers — but in 2019, he wants to rapidly expand their business while maintaining the quality of service for homeowners “by matching them with the right agents and maintaining the quality of service we provide to agents by matching them with homeowners that are a great fit for their services.”
Steve Cook is a communications consultant and editor of Real Estate Economy Watch.