Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Thursday, April 06, 2006

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."'


At 4/06/2006 10:22:00 AM , Blogger Marinite said...

This comment has been removed by a blog administrator.

At 4/06/2006 10:23:00 AM , Blogger Marinite said...

Cutting commissions is just another form of incentive. I hope there is a backlash against their industry and the commission is removed and replaced with a flat fee. After all, does it involve twice as much work to sell a $1 mill house as compared to a $500K house? No. The amount of work involved is the same. If there is some special circumstance that involves more work on the part of the realtor, then the realtor can adjust the fee to compensate.

At 4/06/2006 11:42:00 AM , Blogger moonvalley said...

I love these tips for first time homebuyers, of course the best part is the part addressed to renters, warning them about how they're wasting their money.
“It’s staggering when you think about the cost of living, especially if you’re a renter and not a homeowner,” says Umholtz. “If you’re currently paying $1,500 a month for rented housing, over the next three years your property management company will effectively have reaped $54,000 of your hard-earned cash. You’re paying the mortgage for the property owner, when you could be building equity in your own real estate investment.”
Wow, how does one figure then that while renting one caan live in a house that it would cost perpahps ten times the amount monthly to buy, and then of course there's this part:
The appreciation value and tax benefits of getitng into the housing market, especially in a desirable location, such as the Sonoma Valley are some of the key advantages to owning a home
That is assuming that property always goes up..oops what am I thinking of course it does, this is Sonoma!
The article is here

At 4/06/2006 11:56:00 AM , Blogger Athena said...

well considering the prices of the houses, the rent is NOT covering the mortgage for the homeowner unless that homeowner bought back in the day of normal prices.

Now... at best the rent you may pay is simply a band-aid on a bullet hole for the soon to be upside down FB.

Not worth it to end up that way yourself. Invest the difference between what it would cost you to own and what you pay in rent yourself.. you will end up better off. when the mortgage to rent ration tightens up you can look at the opportunities again...

At 4/06/2006 12:46:00 PM , Blogger Marinite said...

I think I read that Sir John Templeton, the uber billionaire, has been a life-long renter. Never had a mortgage and says he never will (very likely as he is, what, 90 now?). The point is, here is one of the world's most financially savvy people and he rents. Think about it. Any fool who says renting is throwing their money away does not understand what they are saying.

At 4/06/2006 04:29:00 PM , Blogger moonvalley said...

well, I can attest having owned two houses, that renting has definitely been cheaper.

At 4/06/2006 04:30:00 PM , Blogger Athena said...

cheaper and more flexible sometimes.


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