In an increasingly crowded and competitive real estate market, brokers are messing with traditional models, and that could mean big savings for sellers and buyers.
For decades, the 6 percent commission for real estate agents has been pretty standard, but then came 2 percent and 1 percent offers from new brokerages, and now, just a flat fee.
London-based Purplebricks, which is barely 3 years old, launched its new U.S. business in Los Angeles on Friday, after raising $60 million in special stock offering.
It offers the full services of a regular real estate brokerage for just $3,200. That includes professional photography, 3-D virtual tours, help with staging, home tours and listings on all the major online platforms.
Buyers who choose Purplebricks as their agent will receive a $1,000 rebate on closing. The model has been successful in the U.K., and the company expanded into Australia in 2016.
"I think what's great about our model is it's new in the U.S., but it has been proven in the U.K. within three years," said Eric Eckardt, Purplebricks' U.S. CEO. "When they launched in the U.K., they weren't the first flat-fee model, but the way they approached the market, with a full hybrid offering, with the customer service from listing to closing, with a local real estate professional to provide all the services associated with that — it has really been a competitive differentiator."
Purplebricks is not the first flat-fee model in America. Reali recently launched in San Francisco with much the same offering but a higher flat-fee of $4,950, likely because of San Francisco's higher median home price. It is now expanding to Sacramento, California.
"The differentiation we make is not just our agents or fees," said Reali CEO Amit Haller. "We created significant technology and a strong efficiency of our agents. That's what allows us to reduce costs so significantly at the consumer level."
Haller said that as his company reaches other, lower-priced markets, the flat fee may decrease.
Both Reali and Purplebricks focus heavily on technology, which is taking over the real estate business in general. Haller started in tech and then moved to real estate.
"In general, the real estate market is being disrupted by many people, and I think that many of us, as a company, we expect a lot. We are going after the same war," Haller said. "We want to change things for the consumer."
On the agent side, the draw is that real estate professionals no longer have to negotiate commissions and haggle with other agents. Purplebricks is also giving agents another incentive: exclusive territories.
"They will be independent contractors," Eckardt said. "We are the only real estate firm we're aware of in U.S. that will offer a model where if you work with Purplebricks we're going to assign you a group of territories defined by ZIP codes that no one in our office can compete with, so as an agent you own that market."
Agents will earn a portion of the flat fee and also a portion of the commission split on the buy side, whether they sell a Purplebricks listing or any other listing on the open market, Eckardt said.
Last year, flat fees were paid to agents in just 2 percent of all home sales, according to the National Association of Realtors. The association has no definitive stance on the flat-fee model.
"We encourage all business models to come in," said Lawrence Yun, NAR's chief economist. "We don't favor one business over the other, and we let the Realtors in a very competitive market do their best to get the consumers."
Consumers in Los Angeles seemed split on the idea of a flat-fee model. Michael Degala bought a home eight months ago and remains skeptical.
"Because they're getting paid the $3,200, they're not working for something," Degala said.
Randall McArthur sold his home in 2013 and paid a 6 percent commission to his agent. He was more intrigued with the flat-fee idea.
"We would have thought about it, sure. I mean you look at a $6,000 commission versus $3,200, and you'd have to say, what am I getting for that money?" McArthur said.