Low fee? Let’s deal
IF you think these must be tough times for real estate agents, John Thyne has news for you.
“The current market is great for us,” says the co-founder of Santa Barbara-based Goodwin & Thyne Properties, one of a growing number of discount brokers serving Southern California.
The depressed state of the housing market has renewed debate over commission charges, with some people arguing they’re too high and should come down while others make the case for raising rates. In this uncertain environment, sellers are starting to pay more attention to discount brokerages and those that offer flat-fee services.
That doesn’t surprise Thyne, who reckons that homeowners, squeezed between stagnant sales and static prices, and watching already skinny profit margins shrink even more, are looking for alternatives to traditional, more expensive brokers.
And that’s just what Goodwin & Thyne has been offering since January 2004. The company, trumpeting “full service at a fair price,” charges sellers only 1.5% commission, a far cry from an industry average hovering just above 5%, of which half typically would go to the seller’s agent.
“It rose to 5.18% in 2006, and I expect a similar rate in 2007,” said Steve Murray, editor of REAL Trends, a Colorado-based publishing and communications company offering analysis and information on the residential brokerage industry.
The discount brokerage business model, permutations of which have been pressed into service by major players such as Help-U-Sell, CataList Homes and Assist-2-Sell, has long ruffled the feathers of traditional realty agents, who argue that you get what you pay for. Pay less, they say, and you get less -- exposure, time, attention and service.
Not so, insists Thyne, ticking off all the usual marketing initiatives offered by his company, such as signs, lockboxes, open houses, print and online advertising, photographs, fliers and direct mail.
He added that his firm stays engaged with clients all the way, helping conduct contract negotiations, arranging inspections and repairs, and acting as a liaison with title and escrow companies.
But real estate transactions usually involve agents on both sides of the table expecting to be paid. Thyne says that in about 40% of their transactions there is no buyer’s agent. In cases, for example, where his company finds the buyer, there is no commission paid on the buying side. In the other 60% or so of cases, the company leaves it up to the seller to offer what he or she likes to the buyer’s agent. He says the majority offer 2.25%.
When Goodwin & Thyne acts as a buyer’s agent, it takes all of the commission offered and rebates anything above its 1.5% limit to the buyer.
Though rival operators may not appreciate this brand of competition, it appeals to homeowners such as Debbie Phelps.
“It’s all about walking away with money in your pocket at the end of the day,” said Phelps, who estimates she and husband Doug saved about $30,000 when they listed with Goodwin & Thyne and sold their Goleta home in June.
The couple decided to purchase the 2,800-square-foot, three-bedroom, three-bathroom property for $1.1 million in 2003 and then sold it for $1,375,000 when Doug Phelps, a school principal, changed jobs. They have since bought in Newport Beach, paying slightly above their Goleta sales price for a 50-year-old, remodeled family home with three bedrooms and an office.
Phelps doubts they would have gotten a better price for the Goleta property with a non-discounted realty agent. “Why would you pay someone else much more money when you can get the same job for a fraction of the cost?” she asked.
The number of people considering that question -- and coming up with the same answer -- has boosted Goodwin & Thyne’s bottom line. In 2004, the company completed 22 transactions worth around $13.5 million; last year, 74 transactions worth $67 million.
They have already passed that dollar amount this year, Thyne said, with the help of deals ranging from a $137,000 mobile home on leased land in Ventura to a $6.75-million home in Carpinteria.
In less than four years, the staff has mushroomed to 28 agents, and the company has just opened its fifth office, adding Santa Monica to branches in Ventura, San Luis Obispo, Lompoc and Santa Barbara.
Why then is Goodwin & Thyne willing to work for less? Thyne said its founding philosophy was to charge less because it believes it’s the right thing to do and because it could see no justification for charging the same high rates year after year as property prices rose dramatically. On a purely practical level, he said, the company’s performance to date shows it can still operate a profitable and successful business even while charging less.
Providing another alternative to traditional firms is the growing number of brokerages such as Irvine-based Help-U-Sell and Reno-headquartered Assist-2-Sell, which allow homeowners to choose from a menu of flat-fee services.
HouseTech, headquartered in El Segundo, joined the flat-fee ranks in September with agents working from a central call center helping buyers -- typically after they have found a home -- handle issues including mortgage applications, making an offer, negotiations and closing.
The traditional “transaction costs are enormous considering the amount of time spent,” said company President and Chief Executive Lee Leslie. HouseTech charges a flat $1,500 but gives buyers all the commission it receives from the sale of the house. “We average rebates of $15,000.”
Bill Nelson, an agent with Signature Properties of Orange County, is sympathetic to those who believe that today’s market, where agents have to spend more time, money and effort making sales, justifies higher commission rates rather than lower ones.
Nelson is president of Pacific West Assn. of Realtors, the largest local association of Realtors in California and fifth-largest in the nation, with about 15,000 members in Orange and south Los Angeles counties.
In the property-buying frenzy before the current slump when homes were virtually selling themselves, often in a storm of multiple offers, Nelson said, regional commissions tracked at around 4%.
With today’s market having done a U-turn, he’s aware of sellers offering up to 6% commission to gain an edge and move their properties. That makes good sense to Nelson, who thinks agents are more than justified in their levels of compensation.
They have to staff more open houses, spend more on advertising, put more effort into “beating the bushes to find buyers” and then take more time on negotiations, he said.
He also notes that agents get paid only when a home sells. “They can spend a lot of time and money and end up out-of-pocket if a home doesn’t sell,” he said. “That’s a risk for agents each time they take a listing.”
Nelson watched the growth in for-sale-by-owner listings when the market was hot, but now he expects that trend to fade as people recognize they need professional help in today’s difficult market.
Still, as homes take longer to sell and perhaps don’t bring the stellar prices once hoped for, owners are paying more attention to commission levels: 5% on an $800,000 property adds up to $40,000, dwarfing all the other closing costs combined.
When people were making 25% profits, or even 100%, “they didn’t care,” Thyne said. “But if it’s now only 10%, and they’re giving 6% or 5% to an agent,” sellers start to feel that.
Bill Vetica admits he knows little about discount brokers and has never been tempted to find out more. He’s always turned to traditional realty agents, always had great personalized service and sees no reason to consider changing.
For the past half-dozen years, Vetica, a teacher, and his wife, Julie, a retired teacher, have dealt with another husband-and-wife team -- Dave Delmotte, the broker at Coldwell Banker Star Realty in Lakewood, and agent Dell Delmotte.
She first helped the Veticas sell their family home in La Palma and found them a condo. Earlier this year she listed and found a buyer for that condo.
Meanwhile, the Veticas, with the help of some free advice and guidance from Dave Delmotte, bought a new two-bedroom, 1,500-square-foot home from developers in a more rural setting east of Los Angeles.
One of the things that impressed Bill Vetica about his dealings with Dell Delmotte was her readiness to chip a couple of points off her commission to help transactions go through more smoothly.
That sort of flexibility, Dave Delmotte said, often is overlooked by those favoring discount brokers over more traditional operators.
“Commission rates depend on circumstances and are negotiable between each individual and the broker,” he said.
However, Delmotte is an equally firm believer in rewarding agents for the job they do.
“If we can get the highest dollar amount and close on time, if we deliver peace of mind and a stress-free experience,” he said, “then I think we’ve also earned the fee we charge.”
