A successful real estate firm that got its start in Denver is spreading its business model nationwide. I’m not giving its name, only because the company is prone to suing those who speak negatively about them.
How successful are they in the Denver market? Currently they have 147 active listings, 90 listings under contract, and 741 sold listings in the past 12 months. Their roster currently includes 23 licensed agents, only 8 of whom have been with the company over 12 months.
This non-Realtor firm’s approach is to assail Realtors for “overcharging” sellers, claiming that they will sell any home, regardless of price for $5,000. Half that amount goes to them — with $500 paid upfront, whether or not it sells — and $2,500 as their suggested commission for buyers’ agents. What they don’t disclose is that the vast majority of their clients end up paying much more than $2,500 to buyers’ agents.
Agents for this firm work on salary, get 4 weeks paid vacation, health insurance and can turn off their phones after work. It sounds like a nice place to work, but is it a model that provides the best service for real estate clients?
This firm promotes how much it saves sellers by citing 6% as the typical commission — in fact, the average commission is in the mid 5’s — comparing that to their $5,000 flat fee. On their website they boast about the millions of dollars their model would save sellers by multiplying all transactions in a given market by $5,000 versus 6%.
That’s a great way to get a listing appointment, but that listing appointment typically ends with sellers agreeing to offer a much higher co-op commission. Sounds like “bait and switch,” doesn’t it?
The proof is in REcolorado, Denver’s MLS. Of this company’s 147 current active listings, only 14 are offering $2,500 co-op commission. More than three times as many (44) are offering the typical 2.8% commission, and another 33 offer at least 2%.
Moreover, all 14 of those listings offering $2,500 commissions to buyer agents (and most of the listings offering higher amounts) have the following statement under “Broker Remarks” — remarks not seen by the public but visible to every buyer’s agent: “Commission listed is not a fixed rate and is NEGOTIABLE. Buyer and buyer agents can request additional commission if needed by putting the following into Additional Provisions: ‘Buyer directs Seller to pay Buyer Agent’s Brokerage an additional $XXXX on top of the MLS advertised XXXX for a total of $XXXX’.”
Given that explicit instruction, it’s reasonable to assume that a majority of those listings offering only $2,500 to the buyer’s agent will end up paying a good deal more. Unfortunately, the MLS doesn’t require the disclosure of the buyer agent’s commission actually paid at closing.
This brokerage claims to offer full service, but three-quarters of its listings have the following statement under Broker Remarks: “Seller has requested no Sunday deadlines and that all deadlines be 5 pm. All offers must be received by 8 am for same day response.” Personally, I’m offended by this blatant misrepresentation. The seller did not request no Sunday deadlines, although that “request” might be in the listing agreement signed by the seller. (Remember, their salaried agents are told they can turn off their phones when they go home.) Also, I couldn’t find a single listing that advertised an open house. Full service? Not to me.
I should note that my own recent experience selling one of this brokerage’s listings was quite positive. For one thing, it paid me a 3.1% commission.
Also, I must say that I was impressed by this company’s use of technology and that they communicated and responded more effectively than their Broker Remarks indicated they would.
Notwithstanding this recent experience, I don’t appreciate the way this company misleads the public in their advertising and on their website. They do save sellers on the listing commission, charging a flat $2,500 instead of 2% or more. That’s a pretty low amount for listing a home, but then again, they don’t spend much in the way of time or money on their listings — I didn’t see magazine-quality photos or video tours, for example — and their goal is clearly to make up for their low listing commission with a high number of listings.
Do sellers benefit from their business model? That’s debatable given the lack of time and resources that sellers receive from a full-time, experienced agent who can price their home right to draw competing offers and then bid those offers up to net the highest price for their home. For example, they priced a home in my own subdivision for $100,000 less than my valuation software suggested. (As a non-Realtor firm, they don’t have access to the same sophisticated valuation model, called RPR, that I use.) Then they went under contract in one day. This is not a good idea, because if an offer comes in on the first day it’s pretty likely that other offers will soon follow. I’m confident that my neighbor left a lot more money on the table than he “saved” by listing with this “flat-rate” brokerage. (FYI, this seller offered $12,500 co-op, and may have paid more.)
This brokerage will continue to be successful with their business model, and I will continue to show and sell their homes — getting a pretty good deal for my buyers because of their low listing prices, while earning the kind of commission which any hard-working buyer’s agent should expect to earn.