Stepping on Broker Toes

Wall Street Journal Housing Forum

"Consumers often grumble about real-estate commissions, particularly because the surge in home prices over the past decade has pumped up the amount pocketed by agents. People selling homes typically pay commissions of 5% to 6% of the price, which is split between brokers representing the buyer and seller."

"As the real-estate market continues to cool, a growing number of brokers are doing what was until recently unthinkable. They are giving most of their commissions to buyers."

"A small number of real-estate brokers already offer cash rebates on their commissions as a way to attract customers, but the idea has never gone mainstream. Many small firms have begun offering to help owners sell homes for a flat fee, usually a few hundred dollars, rather than taking a percentage of the sale price."

"This novel pitch is catching on in some of the priciest real-estate markets in the country. In February, Seattle-based Redfin launched a service that offers to rebate two-thirds of the commission it receives for representing a home buyer. Redfin currently operates only in the Seattle area but plans to expand to San Francisco in May and to Los Angeles, San Diego, Boston and Washington later this year."

"Meanwhile, BuySide Realty Inc., a new company based in Chicago, is expected to announce today the launch of a service offering home buyers rebates of 75% of the commissions it earns as a limited-service broker. The closely held company will initially operate throughout Illinois, Florida and California and aims to cover 39 states by the end of 2008."

"Joseph Fox says he and his brother got the idea for BuySide a year ago while shopping for a home together in Santa Monica, Calif. Mr. Fox says they approached a real-estate agent who advised them to first look at homes online before spending time with the agent. Mr. Fox recalls asking, "Why are we doing his work?"'

"The premise of BuySide and other rebaters is that many consumers nowadays find the homes they want to buy online and should be able to share in the commission paid to the agent that helps them complete the transaction."

"BuySide customers will view homes on their own rather than being driven around by agents."

"The BuySide agents, to be paid salaries rather than commissions, will be available to answer questions and help guide the paperwork by telephone and email."

"The firm has 45 employees and offices in Chicago, Miami and San Diego."

"These new rebaters join a long list of entrepreneurs who over the years have tried to reinvent the residential real-estate business, which generates more than $60 billion a year in commissions. Still, discounters keep hacking away at the traditional model, and some hope that the recent rise in interest rates and the housing-market slowdown will help them."

"Because buyers face pricier mortgages, they may be more eager to seek a rebate to help them afford a home, and with lower prices, sellers may be less willing to pay a standard commission. The new firms are trying to make the idea more compelling by dangling bigger rebates, though they also offer significantly less service."

"As for the possibility of a backlash from traditional real-estate brokers, Mr. Fox says, "if we're not stepping on toes, we're not doing anything big here."'