While traditional real estate companies sometimes use the term “discounter” as a disparaging remark when referring to reduced-rate and limited-service real estate business models, these alternatives shouldn’t be shunned, said Lyle Martin, co-founder of Assist-2-Sell – and discount should not be a dirty word.
Martin, who walked away from the standard real estate market to start up an alternative business model in 1987, participated in an Inman News audio conference today along with four other real estate industry entrepreneurs. The conference, “New real estate business models – a threat to your livelihood?” featured lively discussion about alternative approaches to the business of real estate.
Audio conference panelists also included Mike Davin, executive vice president and co-founder of CataList Homes; Brian Yui, CEO of HouseRebate; Lawrence Bunnell, CEO and principal broker of InSight Realty; and Steve Malachowski, President at One Percent Realty, Inc.
While his own company has evolved from a limited-service model to more of a full-service model over the years, Martin said that it has become clear to him that consumers are definitely interested in lower-commission alternatives to the standard brokerage model. “We accept the label as discount brokerage,” Lyle said, even though discounters are sometimes painted with a broad brush by the media and competitors as offering reduced prices for reduced services. His company has a different motto, though: “Full service with savings.”
And while all of the companies represented discount-rate business models, no two were alike. Davin’s company pays agents a base salary and covers medical and dental plans, for example, while agents at Yui’s company are independent agents working out of their home offices and Bunnell’s company offers flat-fee MLS listing and home-buyer packages, as well as real estate services in an a la carte format.
Yui said traditional brokerages have jumped on the discount commission bandwagon, though they may not publicize this fact. “Traditional brokers are (sometimes) taking listings for 5 percent or less, especially in the California market. A lot of traditional brokers are discounting their fees without really advertising that they are.”
Though commissions split by listing agents and buyers’ agents have historically hovered around 6 percent, the national average fell to about 5.4 percent in 2001 and has been about 5.1 percent for the last couple of years, according to research by Real Trends, a real estate publishing and communications company.
As home prices have risen dramatically in recent years, the traditional 6 percent model has become old-fashioned, said Malachowski. “We prefer to use the term ‘overpriced’ rather than traditional,” he said.
Competition from discount firms was cited as the biggest source of pressure on real estate broker profits in a recent Inman News poll. Fifty percent of respondents said discounters were the top source of pressure on profits.
Panelists said that while some in the industry view alternative business models as a threat, they believe there is room for everyone. They said they do not currently have substantial market share in the industry – several participants said their companies had 1 percent or less of the market share in their business areas – though they expect alternative models to grow in the long-term.
Martin said, “We get blamed for the failure of a lot of real estate agents who are out there. The truth is there’s room for everybody. The good agents are not threatened by our model.”
And Davin said, “We look at this as a 10-year trend.” The goal is to slowly grow the business and market share, he said, “so we have a ‘catcher’s mitt’ when the market flips.”
There will likely be a major shakeout in the real estate industry within the next decade, Davin said, and he predicted that the number of Realtors will fall to about 600,000 from its present level of more than 1 million. “It’s the agents who are doing five or six deals a year that are going to feel the heat,” he said.
While the National Association of Realtors represents many traditional brokerages that have a lot of weight in the industry, Davin sad that the association’s code of ethics has helped the cause of alternative real estate business models. “I think NAR is a huge plus for us because of the code of ethics. It rises people up to think about the clients and not just the commission,” he said.
Martin agreed, “We have found (the association) to be very helpful when some of the traditional models have gotten out of line. (The association) has been very good in acting as a liaison.”
Given the cyclical nature of the real estate industry, some industry professionals have speculated that a downturn in the current housing boom could spell doom for discounters, though Martin said he disagrees. “When the market gets tough, home sellers need to be more competitive in pricing their home,” he said.
Malachowski, whose business focuses on the Austin and San Antonio markets in Texas, said “we’ve been flat on our backs for the past four years” in terms of the strength in the area’s housing market, though his business model has been “flourishing.”
The next Inman News audio conference, scheduled for 11 a.m. PST on Thursday, Oct. 14, will feature a discussion with Mike Long, CEO of Homestore, which operates Realtor.com, HomeBuilder.com, RENTNET, and Homestore.com. Long joined Homestore in 2002.
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