Why some home buyers are ditching the real estate agent and turning to start-ups

Real estate agents used to be privy to a lot of information that home buyers couldn’t obtain on their own.

But now property listings, photo galleries, historic sales prices, school ratings and neighborhood crime rates are freely accessible to anyone with just a few clicks. For some assertive buyers, that’s an invitation to bypass an agent and, in the process, cut out the pesky 5% to 6% commission that is traditionally split between the buyer’s agent and the seller’s agent.

To help buyers go it alone, or close to it, several real estate start-ups have emerged that promise an easier solution to a notoriously stressful and expensive purchase. By eliminating or limiting an agent’s role, customers save money and streamline the process.

It’s also leading to tensions with the hundreds of thousands of real estate agents around the country, who say the companies are shortsighted and overlook the skills that a professional agent can offer.

“Going online and looking at listings can give you a decent idea of what you’re looking for and what’s available, but when it comes down to it, most people still use an agent,” said Adam DeSanctis, a manager for the National Assn. of Realtors. “They seek that experience and expertise a Realtor in that area will have.”

When Wes and Laurel Duquette set out to purchase a home for the first time, the couple chose not to work with a real estate agent.

“We didn’t find an agent to be much of an advantage, yet they’re so heavily compensated for what they do,” Wes said.

Instead, they turned to Open Listings, a Y Combinator-backed start-up that replaces most of what agents do with an online platform. The Los Angeles company helps customers find a home on their own by creating a personalized feed of available properties that meet their requirements, and sending them emails of open houses.

It’s free for customers to use the service. Once a home has been purchased, Open Listings refunds customers half of the commission it receives from a successful transaction.

In April, the Duquettes purchased a three-bedroom, one-bathroom Manhattan Beach home for $1.34 million. Their refund from Open Listings was $16,000, which the couple put toward closing costs and bringing down their mortgage rate.

Real estate start-up founders say the industry is ripe for change.

According to the National Assn. of Realtors, 92% of buyers use the Internet during their home search and 68% of first-time home buyers are millennials, used to the conveniences of Airbnb and Uber to simplify routine transactions. The same demographic is similarly moving away from actively managed investments to lower-cost, automated financial advisors that provide a list of suggested portfolios and investment options.

“Millennials expect things to be easy and transparent. They’re also used to making high-purchase transactions online,” said Shelley Janes, founder of SideDoor, an app that hopes to become the Ebay of real estate, where sellers can list their homes and connect directly with buyers.

The recent wave of new real estate start-ups isn’t the first time the agent-assisted model has been challenged.

But shaking up the industry has been difficult. For one, the National Assn. of Realtors is an influential obstacle when it comes to change in the industry.

“It’s a powerful trade association, and its cohorts are brokerages, multiple listing services, real estate associations and individual agents. They all work diligently to keep a buyer and seller apart,” said Joshua Hunt, chief executive of Trelora, a full-service, commission-free real estate agency. He said those who are part of the outdated system fight to keep things as they are to preserve current commission rates.

Commissions in the U.S. are especially high. In Britain, Singapore and the Netherlands, they usually fall between 1% and 2%, according to a report by the International Real Estate Review.

Open Listings still uses real estate agents in the process, but in a limited way. No more driving prospective buyers around town, or keeping a lookout for the perfect house for clients. Those tasks all fall on the home buyer’s shoulders.

But hand-holding might be what buyers want most from their agents. According to the National Assn. of Realtors’ 2015 Profile of Home Buyers and Sellers report, the top three benefits buyers receive from using agents is helping buyers understand the home buying process, pointing out unnoticed faults of the property and negotiating better contract terms.

“More resources and online tools are good for consumers —  they provide a good picture of current market conditions, but employing a Realtor to help find just the right home to purchase and to negotiate on your behalf is key to a successful buying experience,” DeSanctis said.

Open Listings understands this, which is why co-founder Judd Schoenholtz says the company hasn’t totally removed agents from the picture.

The start-up employs nine agents that work exclusively for the company. If its agents do not work in that neighborhood, the company also refers customers to a network of independent California agents, who are able to use the company’s software.

The company is building tools to minimize the mind-numbing amount of labor that comes with home buying: viewings, forms and contracts, inspections. By saving agents time in the paperwork weeds, Open Listings allows its agents to concentrate on the piece where they can make a difference: getting an offer accepted.

“We’re able to refund that much of our commission because our agents only focus on the small but critical piece of the purchase cycle,” Schoenholtz said.

He said the network answers a real need for some agents.

“We’re offering [agents] the perfect arrangement — buyers that will really buy and less of the paperwork,” he said.

Open Listings, which launched last year and became profitable last month, says it has saved California home buyers more than $1 million since its launch. Its revenue has also doubled every quarter, according to Schoenholtz.

Its independent agents work for $25 an hour, plus bonuses and a commission split between Open Listings. There are currently 12 independent agents in the start-up’s network.

The company is concentrating on assisting users with home buying, but in the future, it might add home selling to its offerings.

Sellers, too, are turning to real estate start-ups to help them save money.

Dallas-based Door launched last year. Instead of carving out a roughly 6% chunk of the sale price for commissions, it charges sellers a flat fee of $5,000 plus 2% to 3% of the purchase price for the buyer’s agent. Denver-based Trelora has a similar model, although it charges sellers $2,500.

SideDoor, meanwhile, earns its money from tangential real estate businesses like lenders, real estate lawyers and title companies that use SideDoor to find clients.

“Sellers can come to the site and list for free. Buyers can use the site to schedule home showings. If they need a lender, title company or lawyer, we can put them in touch with one at the point they need it,” SideDoor founder Shelley Janes said.

The companies appear to be doing well.

A real estate agent typically closes six transactions a year, but in just one month Open Listings agents close 12 transactions; Trelora agents wrap up about six transactions; and Door agents average three to five.

But there have been hurdles. According to Hunt, agents and brokerages will go out of their way not to show a Trelora home, or have lied about the condition or availability of Trelora homes.

Christian Redfearn, a real estate professor at USC’s Sol Price School of Public Policy, said another issue is the high stakes involved in home buying.

“I have access to all kinds of data, but I’ve still got to talk to a human. I don’t want to overpay for property. Given how large the investment is, if I’m off by 5%, that’s a huge amount of money,” he said. “A good broker would know the market well, and it’s hard to put that kind of quality on a website.”

That kind of personalized hand-holding is one that Daisha Versaw, 38, missed when she used Trelora to sell her five-bedroom, two-bathroom home in Arvada, a suburb of Denver. The company saved her family more than $16,000, but it was hard on her nerves in some key moments.

Though Trelora agents were responsive when she had reached out, it was still up to her to ask for updates and to stay on top of things. When the resolution deadline drew near for inspections, for example, it was Versaw who informed her Trelora agent of its expiration. “I hated that I was the one reminding him of the deadline.”

Her advice to would-be buyers wanting to skip an agent: “Be prepared to take more initiative and advocate for yourself.”

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