Like it? It’s from my agent
When buying a house, the word “surprise” tends to conjure up negative images, like fractured foundations and termite infestations.
But the surprise Steve Brown received at the close of escrow on his $349,000, four-bedroom house in Redlands was positive -- a rebate check for $2,500 from his agent, Wayne Womack.
Womack, co-owner of Pacific Shore Properties in Huntington Beach, gifted about a third of his commission back to Brown, on top of covering $800 in fees for the appraisal and inspection.
“Once I found out about the rebate, I started telling everybody about it,” said Brown, a firefighter for the city of San Bernardino Fire Department. Brown didn’t realize he would receive a rebate until the deal was in escrow. “I was able to go out and buy new furniture for the new house.”
It’s a bonus most buyers and sellers don’t get. But an increasing number of agents and brokers are competing with one another by experimenting with rebates, hourly rates and flat fees as alternatives to the 5% to 6% commission typically charged.
As home prices have shot up, so have the payouts to agents -- an increase that is not linked to a comparable increase in labor. In fact, some agents admit that their jobs are easier because more buyers and sellers are educating themselves on the Internet before stepping into the market.
Commissions, the most common form of compensation in real estate transactions, have always been negotiable and optional. California law does not require any particular compensation method, only that agents and brokers collect after services have been rendered. In addition, the National Assn. of Realtors has no preference, though it stresses that, to be legal, rebates must come out of the agent’s pocket and not from financing for the home. So the possibilities are abundant, though full-sized commissions are not likely to go the way of travel agents just yet.
Rebates, for example, work off the traditional commission structure and can benefit sellers and buyers. Discount brokers still charge a commission to list a home, albeit a reduced one that hovers around 1.5%. And then there are consumers who value the bells and whistles of home marketing offered by standard-commission agents. Some have their own forms of incentives, such as the cruise tickets that Troop Real Estate in Simi Valley is dangling before buyers.
Flat-rate brokers appear to offer the most significant savings, at some sacrifice. Help-U-Sell, for example, is set up so that sellers wishing to realize the maximum savings must give up more than just those day trips to the cinema while an agent holds their open house.
In addition to baby-sitting their home all weekend and guiding prospective buyers from room to room, sellers often are urged to forgo listing their property on the multiple listing service, because to attract attention a property must offer the buyer’s agent a commission of at least 2%. Instead, sellers are encouraged to save thousands by opting for the franchise’s in-house marketing.
It’s a gamble that the franchise branding, its Internet marketing and other forms of advertising are powerful enough to pull in buyers who will also let the franchise represent them, eliminating the need to compensate a second agent.
Withholding a property from the listing service can save money, some agents say, but it limits the exposure to buyers who might be willing to pay more, sort of like the difference between trying to sell a car on a busy street corner or a well-known dealer’s lot.
Nonetheless, it’s hard to deny that some of the alternatives can help sellers save significantly.
“Some realize that they can buy a Lexus with what they save by doing it themselves,” said Julie Garton-Good, the Idaho-based author of “Real Estate a la Carte,” and founder and president of the 4-year-old National Assn. of Real Estate Consultants, based in Orlando, Fla. The trick, however, is finding those agents and brokers.
Garton-Good says her association has about 1,300 members in three countries, but she only knows of one agent in the Los Angeles area who bills by the hour, an approach that some say works best in low-maintenance sales situations, such as when friends or relatives are buying property from each other.
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No-brainer hourly fees
Hal Feiger, a broker with Realty Advocates in Oakland, offers an hourly rate of $120, including a $675 package that provides consulting services, signs, a key box and a listing.
Feiger said he recently was employed at a flat rate of $2,200 on a $500,000 property sale. The buyer and seller had found each other on their own and agreed to a purchase price, but they required assistance with the paperwork. A different agent had quoted a 4% commission, or $20,000.
The benefit of alternative compensation in such situations appears to be a no-brainer, and, for that reason, real estate professionals such as Roger Steiner, who sells Help-U-Sell franchises through Help-U-Sell Regional Realty Group in Corona, expect to see more of it in the future. But for now, Steiner’s approach of choice is the flat rate offered by his company and its competitor Assist-2-Sell.
The names explain it all -- they help the seller -- although in some cases flat-rate agents conduct open houses and post “for sale” signs, usually for an added fee.
The concept appears to have caught on. Entrepreneur magazine ranked Help-U-Sell among its top 100 fastest-growing franchises for 2004, a list that also included Assist-2-Sell.
“We teach them how to do it,” said Henry Ho, a broker with 18 years of experience who has been part of Help-U-Sell for three years in Los Angeles.
Prices for sellers vary depending on what services they choose and what agency they select. For Ho’s services in Westwood, a flat fee of $6,950 is charged for homes listing for as much as $350,000. As the home price increases, so does his fee, tracking at about 2% of the sale price.
For that, Ho’s agency will list the property within Help-U-Sell, market it on the Internet, purchase newspaper advertising, do direct-mail marketing, outfit the seller with signs, provide training on how to conduct an open house and prepare the paperwork when the deal is done.
At Assist-2-Sell in Thousand Oaks, the cost is less. Owner and broker Kathy McDonald charges $4,995, which includes open-house services.
“If your home is a million dollars, if your home is $3 million, if your home is $500,000, our flat fee is $4,995,” McDonald said. “The others believe that because we’re discount that we’re not providing the same service [as commission-compensated agents], and that is so wrong. The point that I want to get across is that we do provide full service.”
Still, she concedes that her services aren’t for those who also want the fancy wrapping.
“We get clients who have $1-million homes in Westlake calling us
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A savings of $20,000
Joan Stern, who recently purchased rental property through Ho’s branch of Help-U-Sell, said she was very pleased with the service. She has also used it to help her son buy and sell a condominium in West Los Angeles and to sell her in-laws’ four-bedroom home in Diamond Bar.
“They do very well negotiating in both directions for both the buyer and seller,” Stern said. “When I sold, I got better than market price, and when I bought, they helped me negotiate so that I got a good deal.”
She said all the signs and brochures were delivered to her door, as well as the paperwork, so that all Stern had to do was be there for the open houses.
“If you’re willing to spend some of the time yourself on selling it, you save tremendously,” said the business consultant. Her mother and father-in-law saved $20,000 in commissions.
However, Stern cautioned, there is heartache involved when people make unkind comments about the decor and furnishings during an open house.
Stephen Wickman, a seller in Simi Valley, recently replaced a Help-U-Sell agency with a traditional commission-compensated one primarily because he had a five-month window in which he had to sell his house.
“Throughout the summer I had open houses all the time, which became a pain in the neck,” he said. “I would have weekends where as little as two people would show up on a day, and I would have weekends where I would have 10.”
Regardless, Wickman said he was pleased with Help-U-Sell. He decided that a commission-compensated agent, Alex Gandel of Troop Real Estate, had better contacts with other agents in the area and would get his house the exposure necessary to sell quickly.
With Help-U-Sell, Wickman originally listed at $569,000, and then lowered it to $549,000, and again to $539,000 while listed with Troop. It still took two additional months to sell, but Wickman believes his property got more visibility through Troop.
If he had to do it again, Wickman said he would have priced his house lower the first time through a Help-U-Sell branch, and paid the extra $1,000 to have the branch conduct the open houses. He also would have listed the property on the multiple service, a move that would have required offering the buyer’s agent a commission between 2% and 2.5%.
“I like the business model of Help-U-Sell because you can layer different options,” said Wickman, who ended up paying a 4.5% commission on the sale. “I don’t want to come across as favoring one over the other. My dealings with Help-U-Sell were really good.”
Brian Troop, owner-broker of Troop Real Estate, said he believes buyers and sellers seek out full-service brokers because they expect the kind of personalized service that a low-price, high-volume broker or agent can’t provide.
“The people want to know that you care,” he said. “They’re going to do business with you now and years in the future.”
Buyers like Cathleen De La Torre can attest to that. The stay-at-home mom in Thousand Oaks, who recently purchased a home using Assist-2-Sell, said she hadn’t even gotten so much as a “congratulations” from her agent after the sale. Her mistake, she said, was letting one agent represent both her and the seller, a move many experts advise against.
“As a buyer, I feel that what we lost out on was having somebody in our corner and only our corner,” said De La Torre, who had a traditional, commission-compensated agent when she purchased her first home several years ago. “The fact is, [the Assist-2-Sell agent’s] interest lay with the people that were selling the house because that’s where the money was coming from.”
Would De La Torre use a flat-rate broker again? “If we were going to sell this house ... oh, in a heartbeat,” she said. “If we were just buying a house from somebody, no, never again.”
Instead, she likes the rebate approach for buyers because “it shows that the real estate agent is willing to work with you and they’re saying that your business is valuable.”
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Agents gain with rebates
Womack, of Pacific Shore Properties in Huntington Beach, agrees. In addition to the niche his company has carved out by catering to public safety employees -- the agency is owned and operated primarily by firefighters -- Womack said the rebates help give him a competitive edge. The agency advertises and informs clients of the rebates, but about 90% of its business is by referral, primarily among firefighters.
“We’re making a little bit less per transaction, but what we’re finding is that our referrals are up 40%,” said Womack, who’s also a San Bernardino firefighter. The agency has been offering the rebates for two years.
Tim Smith, a fire captain in San Bernardino, said he purchased through Womack’s agency because of the rebate and referrals from other firefighters.
“The home that I’m looking at, the closing costs were approaching the $11,000 mark, so what they offered was to pay half of that ... with the rebate,” he said. “I can’t see too many people not taking at least a good, hard look at these types of programs.”
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T.J. Sullivan’s e-mail address is tjsullivanla@yahoo.com.
