Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

38 responses to “Local Discount Real Estate Service Showdown”

  1. Ray Pepper

    “Guerrilla marketing”….I love it. When we did the Seattle Home Show with Clearwire they were the ones who first advised us to place people with signs at major intersections so we did it. In addition Husky and Seahawk games. Clearwire even sets up shop at WestLake Center in front of Starbucks.

    The fact is this. Red Fin, Findwell, Shop Prop, Handspring, and 500 Realty are all great. We all offer an alternative. We at 500 Realty are striving to give 100% back to the consumer in coming years but we will need assistance from the advertiser base. Its all about Lead Generation and customer service. With the Banks being crippled now our Advertising revenues are down so we must stay at 75%. All the companies that offer 50%, with a HUGE house minimum of 5000, and charging 1.5% to List or 5000 is just too expensive.

    We strongly urge listing with either 500 Realty , MLS 4 Owners or some other Brokerage less then 700.00. MLS4owners just increased their pricing to 695 but still a great way to get on the MLS. Also, we advise every seller place your home on Craigs List. Forget the local newspapers and save your money. To charge anyone 1.5% to list or 5000-7000 at close to get on the MLS is insanity. PAY the 3% to the Buyers Agent!!

    As the MLS stands today we feel we offer the BEST in every aspect of service. All of our agents have 1 thing in common. They are financially secure. They are doing 500 Realty to educate the masses and enjoy every home show we attend. We continue to turn down every applicant for a position at 500 Realty for these agents NEED TO SELL to survive. That is where the system is flawed. When the carrot that is dangled invloves vast somes of money the clients interests will always be second.

    None-the-less with or without 500 Realty the change will occur and it will appear like this. Barring a collapse of the NWMLS in less then 5 years you will drive by many major Brokerages and they will advertise ” Buy from this office and receive 5000 towards your purchase just for assisting your Realtor in finding your home.” Then we will know the message has been heard LOUD AND CLEAR. The public will not stand for this 6% in the coming years. Come sit with me in all the Home Shows and listen to what I hear day after day after day.

    So instead of cutting back like Red Fin and others we strive to Give more for less. The consumers need the money NOW more then ever. Integrate Lead Generation and all the up and coming 500 Realty type Brokerages will do just fine. Also please keep your overhead down. Paying agents salary? Give the Agents zip codes and let them market their areas. But, first they must increase their incentive!! ********* 50% is not enough*********** I state this because nearly every Realtor you approach now will gladly tour homes with a client and do all the paperwork for a 50% commission. Just ask buyers. Ask Ira! Ask all the Realtors you know. Its needs to be 75% or greater for there to be staying power in this industry! ******Lead Generation friends *********

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  2. Charles Dean

    While I think there is definitely a place for the discount places, I think that they’ve probably been hit equally hard with the economic downturn.

    Sutton Real Estate was a good example of this. They’d been doing this since the early 90’s and just closed their doors about a month ago.

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  3. Steve Tytler

    I just want to point out to everybody that the RE commission credit the buyer receives from the selling agent must be disclosed to the mortgage lender, and in some cases that can cause a problem.

    For example, most lenders allow credits to cover closing costs and “prepaid escrows” for property taxes, homeowners insurance and interim interest on the new mortgage that is prorated to the date of closing.

    In the past, this was no problem because the RE agent commission could be used to cover the closing costs and prepaid.

    But today, many buyers are having the seller pay ALL of their closing costs and prepaids. That leaves nothing to be paid by the RE commission credit and the RE agent cannot pay any portion of the down payment.

    In that case, the only way to legally accept a credit from the RE agent is to reduce the price of the home.

    Now I know that some discount RE companies pay the credit to their clients “outside of closing” — in other words, they do not disclose the credit on the official HUD Settlement Statement at closing. This is a form of mortgage fraud and it’s illegal (even though it happens all the time).

    Now, don’t get me wrong, I don’t have anything against discount RE brokers, I just want to give a heads up to home buyers who use them to make sure they don’t run into problems when try to close their loan. Talk to your lender up front and make sure that you can accept the RE commission credit at closing.

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  4. S-Crow

    Superb point Steve.

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  5. Ben

    I have never seen Findwell before.

    I can’t say that I will ever use the website again because in terms of technology it is way behind Redfin. This might be a smart move (because it does not change their chances of getting customers much, but reduces overhead) but I suspect that it is not. I use Redfin for at least 15 minutes a day hunting for houses. When comes time to buy I am probably going to use them, because their integration with technology is how I want to work. Or I will go with Ira.

    Redfin have pretty compelling statistics about their performance for buyers that I have not seen other people match. I have heard some stories about people not liking the agents, but to be honest they seemed like people who did not understand the ‘deal’ that Redfin provided.

    Steve – when it comes to the problem that you describe, why would somebody not want to structure the deal in a way to make it work? The money in the pocket for the seller is the same at the end of the day. I have heard that a lot of agents hate Redfin and do whatever they can to sabotage them – is this another example of that?

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  6. Ben

    TIm – I tried to edit my comment but on IE8 the comment text jumps around with every time tick. Just FYI.

    What I wanted to add is: Cue a David Losh post where he misspells Redfin and says how much he hates them.

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  7. Flotown

    Steve, recognizing you are correct about the law, I don’t think its just. If the buyer opts to use a discount broker and perform services that otherwise would have been performed by a full service broker, why can’t that be considered “earned/sweat” equity? That assumes, of course, that the 3% SOC was justified on the basis of real services performed….which is where the debate really lies. I don’t see how that situation is any different than when a commercial developer uses deferred fees as equity for construction loan calcs.

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  8. alex

    I read in an article the other day (sorry, no link) that lean times actually make RE comission go *UP*. The article claimed that back in the 80s, comission was way higher than the 6% that seems to be the rule today.

    The thinking in the article was: in hard times, people are willing to pay more comission in order to enlist the services of the best seller’s agents.

    They did have a good point: in times like this, houses have a 30% chance of getting sold at all. How many of these sales are conducted by the 5% top-earing agens? Any bell-curve admirer would have to agree that it is a sizable percentage.

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  9. Ray Pepper

    Tim, I have done better and tried to tone down the self promotion. But, I was honest from the start…all those Graphs and charts reminds me of my c minus average in Mathematics. I stopped after Algebra 2 and never looked back. I try to stay on-topic but I must say after being on the Bubble for 1 year THIS was my favorite topic………..

    Steve Tytler and Escrow are correct. When we started 500 Realty we sat down with the State of Washington Brokers Division to examine exactly how Red Fin was crediting the consumer back and how we could maintain compliance. It came down to this….”the lender must know about any and all funds that are being disbursed to the buyer from a Brokerage or 3rd party or the lender is the party that is being potentially defrauded.”

    In each and every transaction our Agents contact the Lender and advise the Lender of the amount the Buyer will receive. We do this after all the offer and counteroffer so we have an exact figure based on 3% or 2.5%. Or we utilize the office minimum of 2900.00. We then ask the lender how they want to apply these funds. Its always case by case. On a 20% down loan with seasoned funds the Lender advises us to disperse at close of Escrow. On a 3-5% down the Buyer uses our funds to pay for closing costs. However, on each and every transaction it IS noted on the P & S agreement usually in the Opt Clause addendum. From time to time we have a credit back to the buyer because of an inspection credit or some other credit that comes along in the transaction. When there is a surplus between our credit and the (inspectionional credit) then we sign an addendum to Lower the sales price of the home. Less excise for the seller and the Buyer is more then happy. It all comes down to the lender. Just today I sent out an addendum on a Quadrant Home that is about to close in Gig Harbor. 1st time buyer needed all the funds to close.

    Its all about Buying smart and having the consumer know that when they find a home that is listed on the MLS a bell should ring in their head that 2.25% of the sales price is THEIR MONEY. They just need to know how to ask for it!

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  10. EconE

    Ray…

    You really need a late-night infomercial!

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  11. Ray Pepper

    EconE I was driving 405 on the way to Kirkland and I saw people holding up signs the last couple weeks on the over passes. I had a vision that day…………..But, I dont wanna be responsible for any accidents………….Talk about reaching the masses.

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  12. EconE

    You certainly have the necessary charisma Ray.

    I can see it now…

    Ray Pepper lounging on a yacht (Tom Vu style) with the Swedish Bikini Team slathering him with fragrant oils while claiming. “You too can get rich! $500 at a time!”

    You know I’m only teasing you Ray.

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  13. David Losh

    Funny,

    We all hope you do business with discount brokers.

    I was shopping a little bit over the week end and found a radfun listing. It was different than the rip off listings they usually come up with. You know the ones where the seller has been told they would have to disclose defects, it wasn’t one of those. It was a sincere couple with a child. They had done the work to the house and were selling it themselves.

    Within five minutes they told me what they had paid, the construction cost to fix it, where they currently live, how much they lost on the last house they sold and that they desperately needed to sell this one.

    Of course they won’t list with me, but they need an agent. As far as buying, what do you actually know about a house. What does your inspector know. What are the permitting, economic, development viabilty blah, blah , blah.

    Real Estate is a complicated business. Please be careful when you come to the internet to read what a Ray or Tim are hawking today. These are sales people. radfun, findwell, or realty 500 are sales people. They are faceless people who want your money for nothing before they go back to where they came from rich with your dollars.

    Be very careful here, Please.

    Yes Tim you are now hawking for radfun, they are the worst, they stole my tax dollars to promote their swindle.

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  14. Ray Pepper

    http://www.youtube.com/watch?v=_kEpl3pz63U.

    Bring on the checks! Real Estate is the answer!

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  15. rtbrokerage

    “Will they have a large enough impact on the overall profession to usher in the closing chapter for fixed 3% buyer’s and seller’s commissions? Time will tell…” The only way consumers will see the fixed percentage fee disappear from full-service representation is to eliminate the agent’s commission risk. That means paying for representation on an hourly basis, just like any other professional service consumers receive in the marketplace.

    There is only one efficient way to discount on full-service real estate commissions: pay hourly on a semi-monthly basis. (In our hourly model we charge between $235-$317/hr for real estate services. In our commission model, we charge 3%.) It is the only business solution we found that makes sense for us, and the consumer.

    Hourly rates aren’t entirely new. At some point, most experienced real estate agents have closed a transaction on an hourly basis as a courtesy to a past client. What they haven’t done is advertised this hourly service. Where we are making a difference in the marketplace is we’ve incorporated a formal hourly transactions model into our regular full-service offerings. It allows the committed and knowledgeable consumer to save thousands on their commissions, and simultaneously puts money in our pocket on a monthly basis like any other professional provider. Everyone is happy.

    While the Internet has changed the way consumers interact with real estate information, it will never replace the need for full-service representation. Consumers have neither the time nor desire to learn the nuances of closing a real estate transaction. Like filing a tax return, everyone can do it, but as the schedules get complicated, no one wants to make a mistake so they hire an expert. The goal is to get the most out of a return. The same is true in selling and buying real estate.

    Louis Herrera, CEO RT Brokerage Services, Inc. – [business link removed by editor, per the comment policy]

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  16. Ray Pepper

    235-317.00 per hour? As an RN for over 10 years I get 40.25 an hour working the CCU on Friday nights. Our Agents avg 10-30 hours with a client from tours, to offers, to inspection, to close. In Pierce County we get many of our office minimum transactions of 2900.00 2100 to the Agent and 800 to 500 Realty. 100.00 an hour is still more then double what I get as an RN. Very fair pay!

    The fact is this. Its all about fair pay for hours worked. A few surgeons I worked alongside with at Madigan deserve their 500 or more an hour. Nobody else does.

    David, real estate is anything but a complicated business. The key is finding motivated Buyers and Sellers and not wasting your time with anyone that is lacking in motivation. Try Health Care and you will see truly difficult work that is very underpaid.

    The Buffet is slowly coming to an end in Real Estate and I choose to be at the front of the line..

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  17. Flotown

    Right on, Ray! 300$/hr for basic research skills on the MLS and closing documentation (and assorted hand holding, coddling, etc.) is a complete joke.

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  18. DaveP

    @17 “In our hourly model we charge between $235-$317/hr for real estate services”

    ROFLMAO. That almost makes Ray seem reasonable.

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  19. David Losh

    David, real estate is anything but a complicated business. The key is finding motivated Buyers and Sellers and not wasting your time with anyone that is lacking in motivation. Try Health Care and you will see truly difficult work that is very underpaid.

    Oh yeah baby, get that motivated buyer and seller to screw to the wall. Get the money Ray! It’s all about your commission, find the motivation, exploit that, and get paid! Right Ray?

    In Real Estate I average about $5 per hour per client, maybe less. Hawking Real Estate is not the business, finding the Gems is.

    Ray I’m surprised by you. You made the most profound comment here about a week ago when talking about interviewing radfun agents. Those agents need to make sales in order to survive and you didn’t want them.

    Real Estate is not a commission sales position. It’s about having inside information which people come to the internet hoping to find, but they won’t.

    Rather than go on I will say that nurses are under paid for the work they do. They are doing the work doctors should be doing, but don’t. Cerified Nurses Assistants now do the work nurses used to do.

    The bottom line is that we pay way too much for a lack of health care in this country because everybody is looking to squeeze a nickle.

    So in that regard you are right, Real Estate is not a complicated business as long as you are only after the almighty commission dollars. There is a sucker born every minute, people will buy anything, and hope springs eternal.

    The fact is you are seeing here the caliber of people you are trusting to do your Real Estate business with.

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  20. richie

    Steve Tytler:

    Don’t put the word “illegal” or “fraud.” You are trying to scare the people from getting a discount broker. This is a contractual agreement. No laws are broken. Therefore, nothing is illegal. It’s everybody’s constitutional right too.

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  21. James

    We bought through findwell and Kevin and co did a great job for us.

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  22. Ray Pepper

    hmmmm David.. Not sure how to respond to you today. Seems like you missed a dose….All I can reiterate is our commissions are less then 4k per transaction of which the agent gets 2800. We have no debt, plenty of cash , and a satellite office in a John L Scott Building if you can believe that. I will say it again LEAD GENERATION. NOT COMMISSION> Give that back to the consumer not take!

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  23. sangui

    what a great topic! some of the quasi-pro’s have jumped into the sandbox here and are starting to slug it out…

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  24. Steve Tytler

    richie,

    You are wrong, it is a Felony not to disclose all required information on the HUD Settlement Statement. That is federal law. It is a violation of RESPA (Real Estate Settlement Procedures Act).

    It is NOT simply a contract issue.

    Again, let me emphasize I am not trying to steer people away from discount real estate brokers. I have no reason to do that.

    I just want to let people know what the federal law is because we have run into problems at my mortgage company with home buyers wanting to take their RE commission credit “under the table” and that is illegal, plain and simple.

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  25. BrianL

    I honestly don’t get the bile towards Redfin. I know several people who bought houses or condos through them over the last few years. All of them were happy enough with the experience to recommend them to others.

    Of my admitantly small sample set of Redfin users, none have expressed unhappiness with the purchase. Sure, some people are disappointed at the market drop – as are most buyer the last few years – but none blames Redfin for protecting them/telling them not to buy.

    Hell, the Redfin agent we worked with suggested holding off on buying for a while and not to feel rushed as he said prices were coming down.

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  26. David Losh

    It’s simple Ray.

    Real Estate is a very complex business. When you buy or sell a half a million dollars worth of asset it all gets complicated.

    Of course you want people to believe. You want people to buy, or sell the easy way. It’s simple, click a mouse, buy a house, not only that we will make you a loan on-line.

    It’s quick and easy. You can educate yourself on line and we will handle all the messy paper work.

    But wait there is more. We will pay you, to pay us, for doing absolutely nothing. We will refund 75% of your money for paying us 100% of the commssion you earned for us.

    Help me out, is that the correct math?

    Let me back up and say I have spent more time in a hospital than a civilian should. I have dedicated years of my life as a patient advocate. Patients need protection from doctors and nurses also.

    I don’t know you, you seem like a fine person. The thing is though I also spend many hours, days, weeks, and even years getting people out of problem properties. I have a niche.

    Many people have been swindled by this easy way to buy Real Estate.

    Real Estate is complicated. Buying well is an art. Selling for top dollar takes skill. Funny hats, or, sorry, T Shirts, don’t get the job done from my perspective of thirty years of experience in Real Estate matters.

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  27. Pierce Anon

    Ray, back to your original post. If I were in your shoes I would not in any way associate myself with Clearw*re. Talk about a company that cannot deliver what it promises. The hatred of this company on the internet is boundless. Bushco has higher approval numbers.

    I do find Redfin very helpful for doing research. When it comes time to buy, I would certainly consider using them.

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  28. Ray Pepper

    David in my opinion you are making it far too complicated. If someone wants to Buy a home that is listed on the MLS then all I say is for all BUYERS to remember 2.25% of the commission is theirs. If they want to spend it on you or Ira great.

    You will do no more for the same Buyer then we will. We will be an advocate for the Buyer, help them make an informed decision, and a very aggressive offer based on the current market. In fact 500 Realty offers more protection for our buyers/sellers due to our affiliation with all our Real Estate Attorneys. Our Buyers have questions then they can ask us or our affiliates. Remember LEAD GENERATION David.

    I am a fine person and so are you. What we have in common is the MLS that we both utilize. T shirts, hats, and hot dogs have EVERYTHING to do with selling. Wearing a 500 Realty T shirts indicates the person has been educated on how to buy and sell in 2007 forward. You would be very impressed by each of our Agents and they would teach even you a thing or two. Remember we only hire the best, financially secure, and most knoweldgeable in the industry.

    In my opinion David there is nobody better then myself at representing any client in Real Estate for either Buying or Selling. There simply isn’t. Not even my co-founder Eric , who always remains silent , but watches from afar at Marchex. Just because we charge less and give the most money back to the consumer don’t assume the Buyer or Seller has a lapse in service. We have the luxury of turning clients/agents over to Red Fin, Shop Prop, Handspring, MLS 4 Owners, and now Findwell when they are not a good fit for 500 Realty. As I said we WANT motivated Buyers and Sellers and those who have done their DD.

    Real Estate is not difficult and as Tim states quite frequently one must question if they even need to use one. I suggest if its on the MLS they must. If not then again do your DD, get a great Real Estate Attorney and draw up the docs. Difficult was last Friday night when I had 2 codes on my shift and a delay in the medics getting to the facility due to a traffic accident.

    Real Estate will never equal the complexity of dealing with people and their desire to stay alive even during respiratory distress. The pay is insanity and its coming to an end!

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  29. Ray Pepper

    Pierce Anon I just blogged and this will be my final post on this topic. You are Dead-on. Clearwire in my opinion is junk. The technology is ahead of its time but the sales tactics, their signal strength, the service, is horrendous. How did we get affiliated with Clearwire? We needed to get into the SOLD OUT Seattle Home Show last year. They had a long standing booth agreement. They answered our ad to co-partner in a 20 foot booth and we came to an agreement on terms. We worked side-by-side with these guys and they were constantly warned and yelled at by the directors of the Seattle Home Show for walking in the aisles and trying to be aggressive in selling their product. 2 guys were fired while we were there from Clearwire for eating in the booth and the other for leaving the booth unattended for 4 hours. It was more of a comedy routine to see who would get the axe next. Needless to say we are now regulars at the Seattle Home Show and we no longer need them…….

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  30. b

    COFFEE IS FOR CLOSERS!

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  31. jonness

    “235-317.00 per hour”

    No wonder Ray is so friggen hyped up. Cut that by 2/3rd’s, add some intellect, and you’re the Sam Walton of real estate.

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  32. Charles Dean

    Man, emotions are running high here. This is fun!

    It’s true, the lender does need to know exactly what funds are going to the buyer. It has become very popular to finance the closing costs by having the seller pay them over the last 5 years. During the subprime boom, some lenders would allow you to have 6% of the purchase price for paying closing costs from interested parties. So that meant seller and agents.

    Legally that 3% SOC is the selling agent’s commission. If they choose to gift some of that to you as a buyer, they can. But it does need to be disclosed on the HUD. If it’s not disclosed on the HUD and the lender doesn’t know about the SOC credit to the buyer, I am pretty sure that is loan fraud.

    Frankly, as a consumer you’re not going to get in trouble over that. However, if that’s the way it is done by discount houses, the brokers are going to end up being the ones on the hook for the fraud.

    The regulators rarely go after the consumer in cases like this. They go after the person with the license. That’s why you have a license. Because you should be an expert.

    I don’t know the ins and outs of it of course. I’m sure Ray and other discount houses have talked to lawyers about it and have some way that they’re able to legally do this. I would wager however, that many of them do not.

    Most lenders nowadays will not allow you to do more than 2-3% “interested party” contributions to the non-recurring closing costs.

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  33. Herman

    $300/hour! Ha! I will pay $12/hr. All I really need is someone with a driver’s license and a map who can let me in to see the house.

    An RE lawyer can submit the papers for $395 flat rate.

    Have a seat and watch the revolution. The only reason RE commands 6% or an equally outrageous hourly equivalent is because YEARS ago, there was no way to find listings or buyers without a telephone and a lot of legwork. Those days are over.

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  34. Discount real estate

    Broker rebates for home buyers and discounts for sellers are one way for consumers to save money when buying a home. RESPA was created for the home buyer consumer so they can be better shoppers for services (brokers, lenders, title insurance, etc) and save money when buying a home; therefore they allow service providers to provide discounts, rebates, and gifts to their home buyers. RESPA encourages competition amongst service providers so the consumer can benefit in the form of lower transaction costs.

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  35. Real Estate News » Blog Archive » Battle in Seattle Real Estate

    [...] in the form of 500 Realty which launched last fall and refunds 75% of their commission to clients. Ray Pepper, Broker/Owner of 500 Realty noted: We at 500 Realty are striving to give 100% back to the consumer in coming years but we will need [...]

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  36. TT

    Herman is dead on.

    6% used to be appropriate. Then we got computers and interwebs.

    There is no technical reason why selling a typical $500,000 house should have to cost 30,000 dollars. That is half a years work for the average worker in King County. Even at $300 an hour, that’s two and a half weeks of work (300 an hour works out to just over $600,000 a year).

    The amount of a commission should reflect the economic cost of the transaction: market analysis, marketing, time to show the place, buyers agent’s marketing, market analysis, scheduling, paperwork, risk, etc. A large chunk of that is finding and analyzing information, a task that if structured correctly is far better handled by computers.

    15 years ago, if you wanted to find out Alexander Hamilton’s political party you only had a few options, but your best bet was to go to the local library and look it up in an encyclopedia. Depending on how far you live from a library that should take anywhere from 20 minutes to an hour. Now, you can have the answer in less than a minute.

    If I can do in a minute what took 20 minutes 15 years ago, why are we still paying 6% commission?

    The department of justice anti trust division is asking a similar question: http://www.usdoj.gov/atr/public/real_estate/index.htm

    Also, stocks used to be really expensive to trade too; now there is zecco in addition to interactive brokers, etrade, tdameritrade, etc. etc.

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