Despite National Fears, Local Agents Report No Pressure On Commissions
Commissions Are Safe While Home Sales And Prices Remain Flat
Turns out there’s a bright side to Connecticut’s fragile housing recovery. While the National Association of Realtors warns brokers and agents to expect to see their commissions drop, high inventory and low prices will keep those drops in check for Nutmeg State Realtors.
“The continued rise in home prices has facilitated the elevation of real estate earnings based on commissions,” according to the 2017 NAR DANGER report. “Those earnings have not gone unnoticed by consumers, who are responding by placing increased pressure on real estate agents to reduce their commission rates.”
Despite real concerns in other parts of the country, Connecticut agents say they’re not getting pushback from sellers on how much they charge for their commission – yet.
The biggest disruptor in the market – and a big threat to real estate agent commissions – is Redfin, whose successful IPO last month made it a $2 billion company. It hasn’t established a presence in Connecticut yet, but plans to continue its expansion. The company says its technology frees up so much of the agent’s time, they sell four times as many homes as the average agent.
Thus they can afford to charge sellers just 1.5 percent to list a home (plus whatever the seller pays a buyer’s agent).
Redfin found in a May 2017 homebuyer survey that “just over half (51 percent) of buyers (excluding those who worked with Redfin agents) received savings from their agent in the form of a commission refund, a closing-cost contribution or another type of savings. That’s up from 49 percent in December and from 46 percent a year ago.”
Redfin claims to save its clients $8,500 on average when buying and selling with its agents.
Agents Begin To Compete On Fees
Nationwide and in Connecticut, buyers certainly are starting to negotiate lower commissions, according to Simon Ru, CEO of UpNest, an online platform based in San Francisco that connects home sellers with prospective agents in the area who are willing to compete for the listing by lowering their commission.
“Consumers are frustrated. All of the information is online, so why pay 6 percent in commissions?” Ru said. “That’s about $60,000 in the San Francisco market. Agents feel the threat from discount brokers, but they don’t want to publicly advertise they will work for less, which might cannibalize their existing base.”
Ru came up with the idea for the business when his father was ready to sell his home a few years ago. Prospective agents wanted a 6 percent commission. Ru negotiated it down to 4.5 percent and the house sold for $1.3 million, saving his father $19,500.
Nationwide homeowners who connect with agents through UpNest save about $6,000 on average, Ru said. The company also offers rebates to homebuyers. The company opened in 2012 and facilitated over $1 billion in transactions in the last 12 months, including several in Connecticut.
Participating agents are vetted for quality before they are allowed to participate.
“We don’t want to have a race to the bottom situation, so we have a detailed RFP process that agents go through,” Ru said. “We check reviews, how many homes they’ve sold, what services they offer.”
Veteran Agents Stress Service
Traditional agents in Connecticut said discount brokerages have always come and gone in the market, but they aren’t feeling downward pressure on commissions the way agents in other states. Home prices here haven’t recovered the way they have in other markets and properties are still difficult to sell.
Quality, experienced agents shouldn’t be shy about charging what they’re worth, said Mary Ann Hebert, co-owner of Better Homes and Gardens Bannon & Hebert in Middlebury.
“An agent who will negotiate their commission downward before starting the job is giving you an indication of how they’ll negotiate for you during the transaction,” Hebert said. “My goal is to have a win-win at the end. Those are the best transactions, where all sides feel good about the outcome.”
Discount brokerages are scattered around the state, but none have carved out significant market share. At least not yet.
“We see them through every spike in the market, said Hebert. “This is a long-term relationship business, a business where mistakes can cost people a lot of money. It takes skill and care to make it work seamlessly. A good agent can guide a seller as they’re trying to get the home ready for the market and help them maximize the price they’ll get for it.”
Agents maintain that a skilled agent can communicate their value to a potential seller and earn a healthy commission. Agents who can explain and demonstrate their value to homeowners have no problem getting decent commissions, said Candace Adams, president and CEO Berkshire Hathaway Home Services New England, New York and Westchester Properties.
“I’ve been in the business for 30 years,” Adams said. “There have always been disruptors and opportunists in the market who try to create value at a discount. You get what you pay for. Their sun sets as quickly as it rises. Consumers are really informed today and aren’t lured by that kind of enticement. If you’re selling a home or buying one, you certainly don’t want to do it without the full value of an experienced professional. You don’t just put a sign in the front yard. There’s a lot that goes on before you list a property for sale.”
Adams sees the tech companies like Zillow and Amazon that are creeping around the edges of the real estate brokerage business as tools, not competitors.
“Technology begins and ends with a platform and doesn’t extend into the relationships,” Adams said. “The evolution of this business has been in sync with the complexity. I don’t worry about it; I take it as an opportunity to watch the different business models. We’re working on a record year. At the end of the day I feel really good about what we’re providing to the consumer and we make sure they have an experience they’ll be happy with – because it can go bad really fast.”