Upstart firm sharply cuts commission on home sales
In a bid to disrupt the residential real-estate industry, Seattle brokerage Surefield is slashing the total commission its customers will pay to sell their homes from 6 percent to 1.5 percent.
Seattle Times business reporter
In a bid to disrupt the real-estate industry, Seattle brokerage Surefield is slashing the total commission its customers will pay to sell their homes from 6 percent to 1.5 percent.
Surefield, a technology-centered startup that so far has sold only a handful of homes, joins a growing number of brokerages nationally that are shaking up one of the oldest features of the residential real-estate industry -- 6 percent broker commissions that are typically split evenly between brokers for the seller and buyer.
“A lot of industry observers have been surprised frankly that the realtor commission has managed to hold at 6 percent pretty much as long as anyone can remember, in boom or bust cycles,” said Rick Sharga, executive vice president of Auction.com, an Irvine, Calif. real-estate site backed by private equity, including Google Capital.
The rapid diffusion of technology into the real-estate marketplace is changing the entire model, Sharga said, in a way traditional discount brokerages couldn’t.
“What might be different this time around is the ability of technology to make the process more efficient, which would enable the brokerage to stay profitable while charging lower rates,” he said.
Listings of homes for sale, once the province of real-estate agents, are now easy for buyers and sellers to access through websites like Redfin.com and Zillow.com, both Seattle-based businesses too.
Surefield’s 3-D technology allows sellers to hold a 24/7 virtual open house for prospective buyers who have Internet access. Because buyers can “walk through” a home’s interior and exterior online, the company says it expects agents will handle fewer buyers who want to physically inspect the home and make a serious offer.
Given those efficiencies, Surefield expects it can still make a profit by lowering its commission to 1.5 percent of the purchase price. On a $500,000 home, a seller would pay Surefield $7,500 in fees, compared to $22,500 in fees to Redfin and $30,000 to a full-commission brokerage, the company says.
That fee, which sellers pay the brokerage, includes $2,000 to pay an attorney who’s agreed to represent buyers making offers on Surefield listings, or to the buyers’ agent.
If a buyers’ agent feels the $2,000 fee is too low, it’s something the buyer and their agent can negotiate, according to Surefield.
“When we look at real-estate commissions around the world, they’re much lower than in the U.S.,” David Eraker, Surefield’s CEO and previously a co-founder of Redfin, said in an interview.
A survey published in International Real Estate Review shows the commission in the United Kingdom averages 1.5 percent; in Singapore, 3 percent; in Australia, 2.5 percent.
The fact the 6 percent fee in the U.S. hasn’t fallen dramatically is noteworthy enough that the U.S. Department of Justice has guidance for consumers seeking to save thousands of dollars on commissions using “innovative brokerage options.”
Redfin’s brokerage was one of the first to challenge traditional brokerages by cutting the total commission to 4.5 percent -- 1.5 percent to the seller’s agent and 3 percent to the buyer’s agent.
Since then, more brokerages have sprouted up that challenge the traditional fee structure. Seattle-based WaLaw Realty, started in 2009, charges a flat fee of $7,995 on all homes below $1 million.
“Most buyers and sellers out there simply don’t know you can negotiate the commission,” said Marc Holmes, WaLaw Realty’s founder. “They just don’t know it’s a possibility.”
WaLaw Realty, which says it provides all the services of a traditional brokerage, collects $1,000 upfront from buyers or sellers, and the balance is paid at closing.
“That commitment is huge because it separates the people who are kicking the tires and the people who are really serious about buying or selling a house,” Holmes said.
Another Seattle startup, Rebls (pronounced “rebels”), aims to match buyers and sellers before a house is even listed and then refer them to partner agents who are willing to accept a lower brokerage fee.
Rebls, which launched in King, Snohomish and Pierce counties last month, had seven agents listed this week, all accepting commissions lower than the standard 3 percent for representing a buyer or seller.
“We’re not trying to cut the agent out of the equation,” said Adriane Holter, a Rebls spokeswoman. The startup’s executive team includes a former Amazon.com lead software designer.
Agents are willing to accept lower commissions through Rebls, Holter said, because buyers and sellers have found each other already through the site’s matchmaking platform.
“Agents serve several functions – matchmaker, educator, negotiator, transaction coordinator,” Holter said. “Matchmaking is far and above the most time intensive.”