Alternative Brokerage Spotlight: Locality

Alternative Brokerage Spotlight: Locality

Read the series intro: Alternative Brokerages Flourishing Around Seattle

LocalityThe 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.?

We currently work with Buyers and Sellers throughout the greater Seattle area. Most of our clients are in Ballard, Green Lake, Wallingford, Fremont, Phinney, and other North Seattle neighborhoods.

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.

  

About 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.

19 comments:

  1. 1
    wreckingbull says:

    Wow, I remember Trevor from the 2006 era. He was a guy that was getting vicious attacks by traditional real estate agents because he broke the six percent rule. I recall that one agent called him a ‘scab’. My how things have changed. The business model seems reasonable to me. It worked for Target after all:

    https://i.imgur.com/HaKzuYU.jpg

    Edit: I now see the ‘scab’ link was actually included in Tim’s post!!! Even better.

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  2. 2
    ray pepper says:

    reasonable commission? give back 1/3? ..Keep 2/3’s?? BIG WHOOP!……….high % of independent agents with desk fees will give 50%…You just gotta ask!…..Move Along…Next……….nothing here..

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  3. 3

    The information about brokerage splits above is incredibly out of date (if it ever was accurate). The splits are not typically so high, either in percentage or total amount. I believe the lower numbers may be a result of Keller Williams coming into the market, but that’s just a guess.

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  4. 4

    RE: ray pepper @ 2 – Ray, Locality is a genuine business model. Trevor is trying to build something that can grow and service as many consumers as may want to use Locality’s services. Locality is real.

    In contrast, $500 Realty is your sideshow hobby. It gives you the soap box you need to preach the truth – the very same truth that is being preached by Locality – that the current “traditional” real estate model is broken. That’s great, the more voices the better on this issue.

    But your constant put-downs of other non-traditional models, models that unlike yours are genuine business endeavors, are tiresome. Particularly because, unlike you, everyone else is really trying to change the game by developing sustainable and scalable businesses. They’re actually trying to change the world. You’re just talking.

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  5. 5

    Trevor, best of luck! I’d add to your list of “6% drivers”: The traditional model of client acquisition. Agents have always been responsible for hustling up their own business. In the era of mass and cost-effective communication, that’s simply inefficient. A real estate firm should be able to acquire clients for its agents in a much more cost-effective manner. And I think that lies at the heart of most if not all of the alternative brokerages discussed here.

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  6. 6
    ray pepper says:

    Craig, Ive seen all the companies come and go trying to produce change. There will be no change until the collapse of the MLS and the mighty G takes over. Or quite possibly an AMZN entity. The NAR will not go quiety either. Its inevitable though. So you can applaud all these new companies taking huge chunks of the buyers and sellers funds but they are all crap and doing nothing to produce real change. MLS4Owners, Congress Realty, and Red Fin deserve a pat on the back. But, even with 60 Minutes airing and 50 millon of VC for Red Fin not getting a significant market share its only TIME that will produce change. Not to mention RF giving nothing back to the consumer now other then a great website, their time has come and gone. People only stay stupid for so long and it will take a big entity to produce this change. Its happening though. Recent acquisition of Auction.com is HUGE so stay tuned. Until then nobody is bringing anything to the table worth mentioning.http://mobile.bloomberg.com/news/2014-03-05/google-invests-50-million-in-property-broker-auction-com.html

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  7. 7

    By Craig Blackmon @ 4:

    RE: ray pepper @ 2 – Ray, Locality is a genuine business model. Trevor is trying to build something that can grow and service as many consumers as may want to use Locality’s services. Locality is real.

    In contrast, $500 Realty is your sideshow hobby.

    This sort of hits on what I’m talking about with the lack of data in these pieces. Without data all we’ve had is a series of (free) advertisements. The reader doesn’t know that despite offering bargain prices almost no one picks that brokerage or that almost the same number of listings fail as succeed, etc. They see what would be an an ad.

    And guess what? I don’t think there’s a mobile app or consumer website where you can readily get that information. And that sort of blows out of the water that the claim that Internet has totally changed things. Consumers do have a lot more information now, but it’s information the powers that be want them to have, albeit somewhat grudgingly in some cases.

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  8. 8

    RE: ray pepper @ 6 – The similar Hubzu isn’t exactly taking the world by storm.

    If Google takes it over in this area they’ll probably drop it after a year or two. That’s the Google way.

    If Amazon gets into the industry, if they have the same results as their grocery delivery enterprise they’ll do a worse job than prior entrants in the areas. Their grocery service sucks compared to Homegrocer.com or even Webvan and Albertsons.

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  9. 9
  10. 10
    ray pepper says:

    RE: Blurtman @ 9 – SWEET JESUS!! I AM THERE!

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  11. 11
    Erik says:

    RE: Blurtman @ 9
    Why wasn’t this thought of before 2009? This is a great idea.

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  12. 12
    Kyle says:

    Tim – great series! Thanks for posting.

    Is there any data on the number of visits a house for sale listed by an alternative broker gets versus a traditional broker? My biggest concern about listing with one of these firms is that agents from traditional brokerages might not be inclined to bring their clients to see it.

    When buying my first house in 2008 I asked my agent on a few occasions to show me a FSBO home. Each time he came up with a reason why it wasn’t worth my time to see. He may have been being honest, but pretty easy to see why realtors might not want FSBO houses to succeed.

    Wondering if these alternative brokers are seeing any of that.

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  13. 13

    By Kyle @ 12:

    Is there any data on the number of visits a house for sale listed by an alternative broker gets versus a traditional broker? My biggest concern about listing with one of these firms is that agents from traditional brokerages might not be inclined to bring their clients to see it.

    I doubt that’s an issue at all, except perhaps with the ultra low cost no service brokers. That basically does put you in a position of dealing essentially with a FSBO, and the agent might not want to risk subjecting their client to that. Clients tend to blame their agents for bad things that happen, even if they are warned bad things might happen in a situation, and dealing with a FSBO anything can happen. So an agent might not want to risk that.

    It also might happen more with very high end clients. A seven-figure buyer is a very valuable asset for an agent and they might be reluctant to bring their clients to certain agents even with major firms.

    FWIW, I don’t usually know the agent or firm until I actually drive up to the house, because that’s not part of the criteria I use to screen houses. Technically that statement doesn’t mean much because I also typically preview, so I will know the agent and firm prior to showing, but I do show suitable houses to clients regardless of the firm or agent.

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  14. 14
    ARDELL says:

    RE: Kyle @ 12

    FSBO is different than an mls listed home by any brokerage including alternative brokerages, because there is no written agreement in place to pay your agent if you buy the house on a FSBO. If you had an agreement to pay your agent yourself, you likely would not have had any resistance.

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  15. 15
    Marc says:

    By ARDELL @ 14:

    RE: Kyle @ 12</ If you had an agreement to pay your agent yourself, you likely would not have had any resistance.

    Exactly. We encourage our clients to look for both MLS and FSBO deals. Just closed one last Friday at well over $1M.

    In the current low inventory market with bidding wars left and right it’s nice to not have to compete with other buyers.

    We also do a lot of FSBO seller deals although those are done by our law firm on an hourly basis. We’ve had a ton of landlords selling to tenants and vice versa so far this year. Now that I think of it we had one of those close on Friday as well.

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  16. 16
    ARDELL says:

    RE: Marc @ 15

    Curious why Kyle and other buyers wouldn’t understand there is no payment to your agent on a FSBO. I did one last year because it was the perfect house for my client. No payment from the seller on that Kyle. I got paid on the sale of that buyer’s house, so it worked out OK.

    Did you expect your agent to not get paid? Just curious. Or did you just not think about it? Marc’s buyer clients pay him whether they buy a house or not, so it wouldn’t matter to him if it is a FSBO or not.

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  17. 17
    Kyle says:

    Thanks for the responses

    Never considered the lack of an agreement in place as the reason. However he could have simply explained this to me and required a buyers agreement before showing me any FSBO houses (as others mentioned). Sounds like FSBOs are just more of a hassle (not to mention having to negotiate with the owner who probably overvalued the asset).

    Ardell – guess I don’t understand an agent wouldn’t get paid for a FSBO because that’s not a sustainable business model. I don’t believe this would ever happen. Theyd need to be compensated some way – in your case sounds like an agreement to sell the buyers home.

    Data would still be interesting to see. All the responses sound very reasonable, but I think they all came from traditional agents (and I’m guessing very good agents as they all routinely provide thoughtful posts to this board). But not sure if the lower tier agents think as big picture.

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  18. 18
    Marc says:

    RE: Kyle @ 17RE: ARDELL @ 16 – To Ardell, I wouldn’t say there’s not payment to the buyer’s agent on a FSBO deal. It’s true that going in there isn’t one but We see it get added in with significant frequency. When we have a WaLaw client offer on a FSBO we usually include a provision that says seller agrees to pay a commission of X and usually set it at 3% then negotiate from there. Frequently they don’t bat an eye. If they do we use it as a bargaining chip while we simultaneously negotiate on price.

    Other times we expressly disclaim any commission and emphasize that point when presenting the offer. It all depends on what we think the particular seller will best respond to (some dislike agents and especially like the idea of a deal “with no commissions”).

    Our clients get a rebate of any commission and ultimately all they care about is net price.

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  19. 19
    Marc says:

    RE: Marc @ 18 – I think the big difference between our flat fee model and traditional agents is that we are assured of getting compensated whether or not the seller agrees to pay a commission. Thus, we have no disincentive to getting involved in a FSBO deal.

    In fact with the crazy sellers’ market we’re in we’re actually incentivized to go for FSBOs because there’s usually no competition. Good example is one I’ve got going on Mercer Island. Client found it through somebody who knew somebody who knew an elderly person ready to move to out of her long time home. It’s a win-win for all involved.

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