Despite some evidence to the contrary, Ben Chudnovskiy still thinks there’s money to be made in being cheap.
Chudnovskiy, who founded full-service Boston brokerage Ben Realty Group in 2008, recently switched gears and created an online, multi-state discount brokerage start-up, spyRealty, which launched this month. The new firm has six agents in Boston and two in New York, Chudnovskiy told Banker & Tradesman.
He solves the problem of operating one brokerage with a handful of agents in two states by keeping it simple: spyRealty promises plenty of help to customers between the offer and the closing table – but expects them to do the leg work of finding a place for themselves.
The site allows browsers to search listings and open houses from MLS-PIN, but unlike most broker sites, doesn’t require users to log-in and hand over their name and email in order to search. Buyers get in touch when they’re ready to buy. By limiting his agents’ involvement to only the negotiation stages of the transaction, instead of doing the legwork of driving clients to showings, Chudnovskiy said he believes he can give buyers what they really need from an agent – expert advice – at a friendlier price than most brokerages.
That’s a very different model than most agencies, and even most discount brokerages. But to Chudnovskiy, the industry needs just such a re-think.
No Need To Babysit
After launching Ben Realty, “I was thinking about how to innovate the process, how to make it more innovative, more comfortable – to look at how the entire process works and make it more efficient,” Chudnovskiy told Banker & Tradesman. “I’m against being an aggressive salesperson. When you have a customer and you’re accompanying him [everywhere], clients can feel pressured. I think that nowadays with all this technology and information available for free, people have become independent. They definitely need a broker at the end of the day – but they’re grownups. You don’t need to babysit your clients, you need to give them freedom.”
The company promises to “refund entire buy-side commission excluding Flat Fee,” of .25 percent of the final sale price or a minimum of $2,000. In the Boston area, where prices on a single family home can easily be $500,000 or more, the refund works out to more than $10,000, the firm says.
Chudnovskiy’s take on the need for a new model for the industry may give some agents and brokers déjà vu. It wasn’t so long ago – 2006, to be precise – when another young startup launched which promised rebates for buyers: Redfin.
Redfin’s CEO, Glen Kelman, was known for his strong critiques of the industry and for controversial moves like last year’s Scouting Report agent review product – which is still making waves. But the company recently backed off its original rebate model, cutting its original 66 percent rebate of the buyer’s agent commission to 50 percent in 2008 and to 33 percent last year – with the Boston market leading the way.
And they’re not alone. National discount brokerage ZipRealty cut its rebates last year. Fellow Boston start-up CondoDomain eliminated its rebate just last month.
“There is always going to be a place for somebody who views our role in the transaction as just a paper-pusher, in a sense. But we’ve been doing this a long time and what we’ve found is that while people like a rebate, what they really want is help finding a home,” said Alex Coon, Boston-area manager for Redfin.
“It turned out that what was most compelling about our model is that [by having salaried agents] the only way our agents got more money was by having a favorable customer satisfaction review. It was what we did to build trust with our clients that they responded to. The rebate helps, but we found we couldn’t offer that much money back without forgoing parts of the service that they really wanted and needed.”
Not For Everybody
Anthony Longo, founder of CondoDomain, said he thinks the rebate simply doesn’t drive consumer behavior.
“There is a market out there that wants a low-cost, low-pressure and low-service model – but it’s tiny,” Longo said. “We have given rebates back for almost three years now, and out of all of our closings, I can count on one hand how many people choose to work with us exclusively because of the rebate. And unfortunately we don’t see any trends of that increasing.”
Chudnovskiy said he thinks his company’s size and flexibility can overcome some of the problems which have plagued the model in this tough real estate market.
“We’re a boutique, we’re operating very efficiently – but we think we’re making a good and smart decision to only keep that half percent and focus on customer relations,” he said.
Still, he acknowledged that what he’s offering is not for everybody.
“People have told me, ‘Ben, I think you’re model’s great, but I’m never going to use you,’” he said. “We’re not going to be able to cater to all [buyers] in the market. There’s people who want to be fully served. There’s a market for those clients, and I think that’s great. But there’s also a market for people who want to be free and independent [and avoid the hard sell].”
It’s far too early to say whether spyRealty will be a success. But the opening of the company revives the question of whether the discount model can make it in today’s market.
Chudnovskiy said he is aware that some in the industry despise discount brokers so much they, “won’t even bring their clients if they see that commission below 2 percent, which I think shows what’s wrong with real estate…. Properties right now are overpriced because transaction costs are enormous. If costs weren’t so high [the bubble wouldn’t have been so bad]. In the current economy we need to cut them to survive.”
