The expansion of online real estate brokerages into the Boston area is causing a few ripples.
Redfin, an online real estate brokerage that launched in Seattle more than a year ago, started serving buyers and sellers in Greater Boston just over a week ago. The firm rebates a portion of the agent’s commission to homebuyers and charges sellers a $3,000 flat fee.
The company will be a key competitor for Territory Real Estate, an online agency that represents only buyers, which weeks earlier announced its formal launch in Boston. Territory Real Estate charges a $3,995 flat fee.
Industry leaders are watching to see whether Redfin and Territory Real Estate sink or swim in this market. Traditional real estate brokers in recent years have clashed with discounters and Internet-based firms like Redfin that don’t rely on the typical commission model.
In some states, Realtor associations have pushed legislative or regulatory changes that require brokers to offer a minimum level of service to buyers and sellers. Supporters of such laws argue that they are designed to protect consumers. But opponents say it’s just an attempt to protect hefty broker commissions and stifle competition from companies that offer services for a lower fee.
In Massachusetts, some brokers say it’s ultimately up to the consumer to decide what type of service they want.
“There’s room here for all types of business models to be able to work in real estate. In the end what will matter is how consumers react. They will be the ones to decide what kind of model they will work with,” said Mel Martocchia, a Waltham broker and an area vice president for the Massachusetts Association of Realtors.
But others expect Redfin and similar companies to face some resistance, especially since the state was slow to embrace buyer representation.
Pat Rioux of List For Less Inc., who charges sellers a flat fee to list their properties on listing services used by Massachusetts Realtors, said the industry is in a period of transition and believes there will be “experimentation with a number of new business models.”
“Based on the adoption rate for buyer agency in Massachusetts, I think that we can expect some resistance and much of the change we do see will be in direct response to consumer demand,” said Rioux, a founding member of the American Real Estate Broker Alliance, a group that represents flat-fee brokers.
Richard Cahill, for one, hasn’t been too impressed with the Internet-based companies that claim to offer full services. Cahill, president of Norwell-based Jack Conway & Co, said such companies don’t typically provide agents with the ongoing training and education that full-service firms do.
And Cahill said such companies funnel customer leads to agents who aren’t usually familiar with all the communities they have to serve and don’t spend the time with buyers and sellers that traditional real estate agents do.
In fact, Cahill said Conway listing agents who have had to work with agents from Internet-based and discount firms have found they’re forced to do most of the work in the transaction.
“The services just aren’t there,” said Cahill. “It is the most frustrating thing. We end up doing all the work for these buyers.”
Cahill said it’s crucial for consumers to do their homework. “Anyone who’s either going to buy or sell a house should investigate all the options that exist out there,” he said, adding, “Competition is good. It keeps everyone on their toes.”
At Redfin, buyers are promised to get back two-thirds of the buyer’s agent commission. With traditional real estate firms, broker commissions of 5 percent to 6 percent of the home sale price have been the norm in recent years, but consumers are free to negotiate commissions. To date, Redfin has refunded over $3.5 million, according to Dave Wilner, Redfin’s vice president of real estate operations.
“We are challenging the industry to think a bit differently about the rights of consumers and aligning the interest of the agents with the clients whom they represent,” said Wilner.
‘A Reasonable Pace’
Boston is the first East Coast market for Redfin, and the firm plans to start up in the Washington, D.C., area next month. One of the chief reasons Redfin expanded into Boston was demographics, Wilner noted.
“We obviously have a variety of customers but many of our customers work in technology and are educated and there are few markets on the East Coast that have demographics that we felt were consistent with the majority of our customer base,” he said.
The company has one agent to serve Suffolk, Middlesex, Norfolk and Essex counties. Wilner said the company plans to open an office and hire more agents and staff in upcoming months but would not specify the exact number of agents that will be hired.
“We’ll expand at a reasonable pace based on our progress in a given market,” said Wilner, adding that Redfin has more than 20 agents in Seattle and about 12 in California.
Buyers who use Redfin do most of the home searching on their own. They can log on to the Web site and view properties online. When they identify a property that they like, they can tour it on their own by contacting the seller or listing agent. They also can contact a Redfin agent in the area to accompany them. Wilner said Redfin offers a buyer three hours of house-touring time. Buyers need more must pay a $250 fee for a three-hour block of time.
Once buyers identify homes they want to purchase, they must submit information online that is then forwarded to a local agent who prepares and presents an official purchase offer. Then the agent negotiates on behalf of the buyer and helps the buyer navigate the rest of the transaction through to closing.
Since Redfin agents get leads forwarded through the company Web site, they’re not spending time prospecting for clients like traditional real estate agents. They also don’t have to spend time showing buyers homes and marketing properties – which frees them up to close more transactions.
Redfin agents close between seven to nine transactions a month, while traditional real estate agents handle six to eight a year.
“Their responsibility is to negotiate deals and help people get the homes they want,” Wilner said.
For sellers, Redfin charges a flat fee but encourages consumers to offer compensation to the buyer’s agent.
And instead of offering agents a split of a commission like traditional real estate firms, Redfin pays agents a salary, offers benefits like health insurance and pays for expenses like traveling and technology. Redfin also offers bonuses that are based on customer satisfaction surveys.
A typical Redfin agent can expect to make $80,000 to $90,000, said Wilner.
The salary, in lieu of the commission, is aimed at getting way from a system that rewards agents more when buyers pay more for a house.
“One of the issues we have with the current industry is that agents and their clients aren’t always aligned in terms of motivation and compensation,” explained Wilner.
Territory Real Estate compensates agents in a similar fashion. The company pays agents a salary and bonus, also based on consumer surveys. The firm, which has an office in Boston, is hoping to hire two or three agents by this summer.
“We think when you represent a buyer it doesn’t make sense to take traditional commission based on a percentage of the purchase price,” said Terry Sanford, who founded the company with Marla Mullen. “They’re hiring us to negotiate the least expensive deal, to find a great house that costs less or help them negotiate a lower price. We felt that a flat fee was the only way to do that.”
The company rebates anything over $3,995 to the buyer. The fee, Sanford noted, is based on the average commission on the average house in the United States.
“It’s not really a discount,” he said. “There’s a million guys doing this at this price every day.”
While that may be true, in the Boston area, the fee can be considered a bargain given that home prices – and commissions – have ballooned in recent years.
Officials from both Territory Real Estate and Redfin said they want to tap into Boston’s tech-savvy market – consumers who are comfortable and confident that they can do much of the buying and selling research online on their own.
“The Boston market is an educated, tech-savvy market; we believe there’s a big constituency of folks who know what they want in a home. They want better tools and support to find that home and they don’t necessarily want to be spammed and pestered and sold to,” Wilner said. “They simply want to have choices and tools to enable them to find the places they’re looking for and, then when they do, have the support to help them negotiate the process.”
