Flat-fee full service discount brokerages are starting to show their muscle and it doesn't appear they'll be going away anytime soon. Since Al Gore invented the internet (source: Al Gore) homeowners have been paying roughly 6% to sell their homes despite plummeting marketing cost for real estate agents. Professional agents today are able to reach much larger audiences, faster and for less money, with greater precision than ever before. The flat-fee model isn't without resistance from some in the real estate industry.
Much like the landscape of the investment world has changed over the past two decades, so too will the real estate business. Investors today enjoy lower mutual fund expense ratios largely thanks to clients centric companies like Vanguard and Fidelity. Investment advisors who were able to adapt to the change are still thriving, but few are part-timers. Don't fret, there will always be a place for real estate agents charging 6%. However, we predict a precipitous overall decline in seller commissions for modestly priced homes (relative to market) in the next 18 months as companies like RedFin & Purple Brick innovate and stoke more competition in the business. The race for efficiency has begun!
The tech-focused UK brokerage continues its steady invasion
The British invasion continues apace. On Monday, the U.K. “flat fee” brokerage Purplebricks announced its expansion to three new markets: San Diego, Sacramento and Fresno. The move comes four months after the tech-focused Purplebricks debuted stateside in Los Angeles and Orange County.
Purplebricks will add 18 real estate experts in these markets, for a total of 60 agents in the U.S. so far, many of whom tally as many as 20 transactions per month through a technology-forward business model that eliminates some commission fees and reduces the role agents play in the process.
“We decided to accelerate our launch strategy in California, which includes Sacramento, San Diego and Fresno,” U.S. Purplebricks CEO Eric Eckardt told Inman. “The reason we picked these markets across California is it gave us different price points and varied demographics.”
Eckardt claims the Purplebrick business model, which eliminates seller-side commission fees and reduces the buyer-side, will save clients in each of the new markets as much as $19,000 per transaction. The average list price across the three markets ranges from $350,000 in Sacramento to around $615,000 in San Diego, Eckardt added.
“Our agents work remotely or virtually in the field because they’re spending time with the consumers,” said Eckardt, who said no physical brokerages will be built to support the new agents. “We have technology that allows us to be more productive and efficient so we do not have a brick-and-mortar store front store or office, other than our core office in Irvine.”
Publicly traded on the London Stock Exchange, Purplebricks disrupted the real estate industry in the United Kingdom, and later Australia, by charging a flat fee to sellers. In the U.S., it charges home sellers a one-time listing fee of $3,200, plus the “buy-side” commission. Sellers must pay the fee either upfront or at closing, regardless of whether their home sells.
If you are in the market to buy or sell a home this year, contact us. Sloat Group offers listing commissions as low as $1,500 and buyer rebates up to $5,000! Schedule a consultation today to discuss how much you could save.