A new Web site promises to connect home buyers and sellers with real estate agents willing to work under a "pay for performance" model that rewards them for obtaining the best price for their clients — or penalizes them if they fail.
While other Web sites let agents compete for clients by negotiating discounted commission rates and rebates, ProOffer.com adds another twist: optional incentive bonuses that kick in when an agent closes a sale that beats an agreed-upon "trigger price" or time deadline.
If a home is expected to sell for around $1 million, for example, an agent might offer to represent the seller for a base commission of 2 percent of any proceeds up to a $950,000 trigger price, plus a 20 percent cut above that target.
If the home sells for only $900,000, the agent stands to earn $18,000, compared with $27,000 under a traditional 50-50 split of a 6 percent commission. But if the home sells for $1.1 million, the seller would pay their agent $49,000 in commissions — $16,000 more than a traditional commission.
Sites like HungryAgents.com and RealtyBaron.com allow real estate agents to bid for sellers’ business by lowering their commission rates.
"We think this will actually have a net positive effect on agent commissions," said Karim Tahawi, founder and chief executive officer of ProOffer.com.
Tahawi said sellers can also come out ahead. Even after paying out additional incentive-based commissions, the seller in the hypothetical example above has $134,000 in sale proceeds they might not have realized with an agent whose primary motivation is to sell a property quickly.
"The proposition is pretty straightforward for clients," Tahawi said. Although ProOffer.com can also facilitate agreements based on traditional commission structures, with a two-part, incentive-based commission structure, "For the first time, I’m paying for something that’s worth something to me. I’m paying $1 to get $10 back."
The incentive structure works the other way around when agents offer to represent buyers through the site, with bonuses kicking in below a trigger price that would typically be connected to a property’s list price, Tahawi said.
If the base commission is set at 2 percent, agents who represent buyers are essentially earning back commission refunds when they negotiate a more favorable price for their clients, up to the full seller side payout of 3 percent.
Sellers looking for a quick sale may also choose to offer incentives to close a deal within a specified time frame — 60 days, for example — either on top of other bonuses or as a standalone, Tahawi said.
"They might commit … to an agreement that pays 6.5 percent (total commissions) if a property sells within 60 days for $900,000" or more. If the agent can’t close the deal within that time frame, the agreement might pay 5.5 percent in commissions if the property is sold before the listing agreement expires.
That incentive system should prove attractive to home builders who are trying to make inroads in reducing large inventories of unsold homes, Tahawi said.
ProOffer.com went public Friday in "alpha" test mode. But Tahawi said home builders, banks and others "sitting on real estate inventory" have been getting private showings.
"They really like it, because for them it’s driven by the numbers," Tahawi said. "They are paying for an outcome rather than a promise of an outcome."
For ProOffer.com to work for consumers, agents will have to embrace the site and provide multiple offers for buyers and sellers to consider, Tahawi acknowledged.
"The trigger pricing for sellers, particularly, requires market competition to get a fair price" and prevent agents from gaming the system, Tahawi said. If, for example, only one agent responded to a request by a seller for representation on a $1 million property and tried to set a trigger price of $800,000, that would not be a good deal for the seller.
To encourage participation, ProOffer.com lets anyone submit commission proposals to buyers and sellers looking for real estate agents. For the moment the site is free, but it will probably evolve to a system where winning agents pay a "success fee" when they land a client, Tahawi said. ProOffer.com may also institute a nominal participation fee to keep spammers off the site, he said.
"If there are no barriers to entry from the real estate agent’s perspective, clients may get hammered with proposals," Tahawi said. "We don’t want each client to have to look at 50 proposals."
With enough experienced agents and brokers using ProOffer.com, Tahawi said, consumers should benefit from the collective wisdom of the crowd, helping sellers price and sell their homes and buyers negotiate the best deal.
The wisdom of the crowd is also the guiding principal behind home valuations site HomePredict.com, another project of Tahawi’s San Francisco-based company, My Currency Co.
When the site launched last year, Tahawi — a former commodities trader who was vice chairman of San Francisco’s Pacific Exchange — hoped it would be better at property valuations than automated models that rely on public records, comparable sales and other statistics (see story).
Tahawi said that although HomePredict.com has drawn real estate investors and others, it hasn’t attracted real estate agents in the numbers he’d hoped to see.
"The traffic is OK, but not exactly what we’d wanted," Tahawi said. "It was pretty clear to us we needed to make the incentives strong to get the professional participation. We created ProOffer.com as a response to that."
While both sites could provide user data to strengthen HomePredict.com’s valuations, ProOffer.com "is its own standalone site," Tahawi said.
While ProOffer.com must attract users to reach critical mass, the agreements it’s designed to facilitate may not be legal in all states. Rules on commissions vary by state and incentive payments may not be allowed.
"There are several states where there are going to be some issues," Tahawi said. "We’re facilitating the customer businesses, and expect agents (will know the rules) in their markets."
From a consumer’s perspective, the commission structure an agent offers should be only one factor in choosing representation, Tahawi said.
ProOffer.com recommends that consumers interview at least five real estate agents, verifying that they are licensed and experienced in their market and checking references.
"The reality is, it doesn’t make sense to choose the cheapest (agent), but the one who creates the most value for you," Tahawi said. "This allows you to uncover who’s putting themselves out there the most for you."
Agents can create profiles and upload properties they’ve represented to help prospective clients find and evaluate experienced agents. In the future, ProOffer.com plans to give agents the ability to bring in content they’ve created at other sites such as blog posts, LinkedIn profiles or Facebook pages, providing consumers with "a rich fabric to draw opinions from," Tahawi said.
"It’s not like you will push a button and say, ‘You’re hired,’ " he said. "There will be an interview process and some due diligence on both sides."
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