Read the series intro: Alternative Brokerages Flourishing Around Seattle
The final spotlight in our in-depth series on alternative brokerages around Seattle is on Locality. Locality was just launched earlier this year by Redfin veteran Trevor Smith. I worked with Trevor while we were both at Redfin, and can personally attest to his skill and professionalism. Long-time Seattle Bubble readers may also recognize Trevor’s name from this 2006 post (before Trevor’s stint at Redfin).
Trevor’s responses to the series Q&A are reproduced unedited below.
What is the single most important advantage your brokerage offers vs. using a traditional agent?
We’re a full service brokerage that puts the interest of our clients ahead of our own. This means charging a reasonable commission but it also means telling our clients the truth, even if we lose the sale. I call it the Grandma test. If it’s something I wouldn’t advise my Grandma to do I won’t advise my clients to do it either.
In 200 words or less, what factors make your brokerage different from a traditional brokerage? e.g. – Cost, services offered, agent compensation, etc.
In many ways we’re actually not that different from a traditional brokerage. We have experienced Agents who work with you one on one every step of the way; we’re tough negotiators committed to getting you the best price; and we provide great marketing for our Sellers to help sell their homes quickly and for more money. The main difference is that our commission is typically 2/3rds of what most traditional agents charge.
I remember when I first started in real estate there was an Agent who showed homes in a limousine with a license plate that said SOLD. He charged his Sellers 10% total commission and people happily paid it. I know of other Agents who charge as little as $500 to put a sign in your yard and list your home on the MLS but do nothing else from there. This is often the false choice given to consumers – that you have to choose either an expensive traditional agent or a discounter. That it’s either Nordstrom or Wal-Mart. It’s my belief though that there’s a middle ground that works well for a lot of people. Perhaps you could liken it to Costco – A quality product at a reasonable price. That’s my goal with Locality.
Who is your typical client? e.g. – Do you focus more on buyers or sellers, certain types of homes, certain price ranges, certain geographies, etc.?
What is your fee structure? How much do buyers pay, how much do sellers pay?
Our Buyers receive a 1/3rd commission rebate when purchasing a property. On a $500,000 home this is usually about $5000. This money can be used toward closing costs, prepaids, and loan discount points. All our Buyers work with one Agent who shows them properties, negotiates the deal, and gets them to closing.
We offer two listing programs to our Sellers. We have a 4% total commission program that includes professional photography, a free staging consultation, open houses, and placing your listing on the MLS and other popular websites such as Zillow, Trulia, and Yahoo Real Estate.
We also offer a 6% total commission package. This package is for folks who want to hand the keys over to their real estate agent and not lift a finger. With this package we provide everything from our 4% package as well as $2500 of staging, $500 of home preparation (painting, landscaping, etc), $500 of videography/virtual tours, and an exclusive website for your listing. Everything included, we usually invest about $4000 into these listings. Because of this huge investment we do have some rules and restrictions regarding the homes that qualify for this package.
Is there anything else you would like to share about your brokerage?
I started Locality after working at both John L Scott, a very traditional brokerage, and Redfin, a very innovative brokerage. With Locality I’ve tried to implement the best parts of both of these experiences while cutting out inefficiencies.
The best part of the traditional brokerages is their ability to offer over the top personalized service to their clients. Buyers and Sellers have one Agent that they work with from start to finish. This time spent together builds a level of trust and understanding that usually produces a much better result for both the customer and the agent.
The downside to this level of service is that it usually comes at a 6% price tag. Because of this some innovators have divided the job up into specialty areas in order to produce efficiency and drive prices down. Redfin for instance teams Coordinators, Field Agents (folks who show houses), and Agents (folks who do the deal) together in order to make the process more efficient. This works well for some tasks. For instance, it doesn’t make sense to send the guy who’s making $100,000 a year out to deliver flyers. On the other hand too much work division can result in a poor client experience or even lost money for the customer. For instance, if the Buyer’s Agent negotiating your transaction doesn’t attend your home inspection how can they negotiate repairs effectively on your behalf?
I believe that personalized customer service is actually not the driver of high real estate commissions. My belief is that it’s caused by three other factors. I think two of these problems can be fixed while one will take a gargantuan shift in public behavior and will likely never be fixed.
- Problem #1: Offices. Office space is very expensive and this expense is passed onto the consumer with higher commissions. Despite this, you’ll find real estate offices on nearly every corner of Seattle.
The solution to this problem is simple. Agents can work from home. Today with technologies like Docusign real estate contracts can be signed virtually. Client meetings can be held at a Seller’s home or at the local coffee shop. Redfin has done a good job with this by placing one centralized office in each market and having their Agents work from home most of the time.
- Problem #2: Designated Brokers. The average traditional Agent in Seattle splits their commission 50/50 with their Designated Broker up to a cap as high as $32,000. This is after the commission has already been split with a cooperating agent. This means out of a 6% commission only 1.5% actually goes to your Agent. This might be justified if the Designated Broker plays an intimate role in the transaction and adds value to the consumer; however after talking to dozens of Agents around Seattle this seems to often not be the case.
This is the main problem I’m attempting to address at Locality. My vision is to create a co-op of Brokerages, each working in their neighborhood of expertise, and each owning their own small business. Each brokerage would remain small enough to keep Broker fees low and to keep personal accountability and neighborhood expertise high.
The one beautiful thing about the real estate industry is that it’s an industry still made up of tens of thousands of small business owners. I think the real estate industry can be changed by playing to this strength even further – by having more brokers owning their own brokerages rather than working for companies that skim franchise fees and commission splits off the top with very little value given in return. This savings can then be passed along to the consumer without a sacrifice in the level of service.
- Problem #3: Risk Distribution. The financials of running a real estate brokerage is a lot like running an insurance company. Real Estate Brokers spend much of their time working with clients who never buy or sell a home. Maybe it’s showing homes to Buyers who can’t qualify for a mortgage or who ultimately decide to rent. Maybe it’s listing a home for a Seller who just wants to test market. In the end the Broker doesn’t collect a paycheck for these folks and someone has to foot the bill. Unfortunately it’s the diligent and decisive Buyers and Sellers who pay for this, just like good drivers pay for the repairs of the accident prone.
Unfortunately I believe this problem will be very difficult to solve. Some folks might charge a retainer fee to make sure they’re only getting the most serious clients. Others might require a pre-approval before they show any houses. In the end though there are just too many variables when buying and selling a house and we humans are a fickle bunch. I simply can’t see a scenario where Buyers and Sellers that close on a home aren’t at least partially subsidizing people who never buy or sell. I hope I’m wrong about this though and we’re able to find a solution to this issue. If we do, I think real estate commissions could be driven much lower.
When I started in real estate I actually had a disdain for my own industry. I thought everyone was just a bunch of greedy Lexus driving sharks bilking home buyers and sellers for exorbitant commissions. Over the years though I’ve found that most real estate agents are smart decent people who work hard for their money. I’ve also found that most consumers value the expertise, marketing, and negotiation skills an Agent offers. Nonetheless, there are still a lot of ways this industry could be better. Not just cheaper, but better. That’s my goal. I want to make things more efficient, more consumer friendly, and more cost effective. I want to make things better.