San Francisco Real Estate - Residential

Discount brokers... do you get what you pay for?

By now I'm sure you've seen the 60 Minutes piece which aired on May 13th about Internet based real estate companies like Redfin putting forth the notion that people save money by using a company like this. Perhaps on the surface it looks that way by not paying a high commission, but the National Association of Realtors has done studies to show that people who work with a Realtor for 15% more than selling it themselves (which is essentially what Redfin helps you do), netting an amount over what a "sell it yourself program" would get. Read our article here.

Let's take a property with a market value of $500,000. Using the statistics above, an individual or couple selling the home themselves would end up selling that home (on average) for 15% less or $415,000. Many reasons could contribute to this fact (lack of knowledge of the current real estate market, the emotional drain of selling one's own home, stressful negotiations over the price, etc.). Regardless, selling the house with a Realtor at a 6% commission at full market value, the sellers would net $470,000 or 13% more that they probably would using a "sell yourself" company like Redfin. This is not something that 60 Minutes even considered.

Alex Perriello, President and CEO of Realogy (the parent company of Century 21, ERA, Coldwell Banker, and Sotheby's International Realty) submitted this letter to CBS News in response:

Your story on the real estate industry that aired on May 13th had more holes than a leaky roof.

Putting aside the inaccuracies regarding "sacrosanct" commission rates, lack of industry oversight and state governments conspiring to stifle competition, the segment grossly oversimplified the complexity of buying and selling a property.

Real estate brokerage is a performance-based industry. Clearly, not all real estate companies are alike. Results will vary dramatically based on a variety of factors, including the experience and track record of the professional you select. Picking an agent to represent you based solely on discount, rebate, or other cash back scheme may seem like a good idea at first glance, but not always at the closing table when all is said and done.

The bottom line is that consumers have ample choice when deciding which real estate company and business model they prefer to represent them in a transaction. Competition is good for the consumer and the industry and is the basis of our free market economy. At the end of the day, the companies that offer the best value proposition to home buyers and sellers will prosper.

What was also not disclosed in the story is the fact that "rebates" like the ones they showed Redfin giving their customers are illegal in some states.

- Mick Orton

posted by SFResidence.com @ 7:26 AM