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Zip Realty and Redfin: Did Zip Realty Fail? Why Did We All Worry About "Rebate Companies"?

By Karen Fiddler, Broker/Owner

Real Estate Agent with Karen Parsons-Fiddler, Broker 949-510-2395 BRE# 01494165

March 24, 2011 10:23 AM

Zip Realty and Redfin: Did Zip Realty Fail? Why Did We All Worry About "Rebate Companies"?

Zip Realty recently announced that they are going through significant restructuring. They are no longer using the Employee-Agent sales model and are going to a traditional Independent Contractor format. Although the company has not admitted failure, they have stated that they intend to put emphasis on the quality of their agents and their experience.

In the coming months, Zip Realty is closing offices in 11 markets nationwide from 35 to 24. That's almost a third of their current presence.

Interesting!

Recently we've seen discussions here on Active Rain and elsewhere about the threat Redfin might present to traditional Real Estate Agents and Brokerages...but hasn't Zip Realty just proved that discount real estate services don't work?

Simply by admitting that they need to emphasize the quality of their agents, Zip Realty is all but stating the discount/rebate real estate companies are seen as employing agents who are less qualified than the traditional agent. I'm not saying this is true.....but this is the impression they have given.

I have not found Redfin and Zip Realty to be a threat. They serve a market.....and maybe not a very large one.....which is not MY market. I don't want to service the discount client! I provide full-service, quality service, professional service and I charge for my expertise. My clients appreciate that and that's why they work with me. But Redfin, Zip and Help-U-Sell and a variety of others have tried the discount/rebate sales model, it would appear that this might not be a long term strategy....maybe once the novelty wears off?

If you are looking to buy or sell real estate in Orange County, we'd love to talk with you. Start your Orange County real estate search here by accessing all of the MLS in one location. We service all of Orange County, Riverside County, San Bernadino County, South Los Angeles County and North San Diego County.

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Karen Fiddler, Broker/Owner

Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA

Orange County & Lake Arrowhead, CA (949)510-2395

Glenn: Ouch....funny, but ouch :)

Chris Ann: Yeah, I jumped the gun, I guess....I didn't even think about it.

Bill: It's so true....the Internet was going to be the death of the agent, but it's not.

Bruce: I haven't seen them around here for a very long time.

Mar 25, 2011 08:48 AM

Larry Costa

Century 21 Classic Gold, Carver MA - Carver, MA

Realtor, MA Real Estate

Great Post Karen, had to read very comment on this one!

Mar 25, 2011 09:43 AM

Tiffany Torgan

Harcourts Prestige Properties of La Jolla - La Jolla, CA

Featured on HGTV's New Show! How Close Can I Beach

One of my girlfriends works for them in here in San Diego and is running all over the place (San Diego County!) for very little money. It is interesting to see that they are closing a lot of their locations. Look at what happened to "I Pay One"....when the market was hot they even sponsored the Sports Arena to be the I Pay One Arena! I haven't seen them since the market turned, that is a classic example that people need to be able to take their Agents seriously on the biggest transactions in their lives! Thanks for the post!

Mar 25, 2011 10:10 AM

Glenn Roberts

Retired - Seattle, WA

Karen - You might notice that Redfin is not opening new offices in new locations because the referral agent is such a better deal for them. Ask a referral agent how much the buyer gets as a rebate in that circumstance. It's not appropriate for me to discuss it here. I see them trending into a company with a great website (unless they sell it to the highest bidder) and then becoming mainly a referral site. There are a few types and prices of property they don't handle here in Seattle.

Mar 25, 2011 10:43 AM

Christine Donovan

Donovan Blatt Realty - Costa Mesa, CA

Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Karen - I haven't been particularly worried about rebate companies. I figure they serve certain needs, but it sounds like it's not working as well as hoped for Zip.

Mar 26, 2011 02:33 PM

Charles Gardner-Realtor/Investor

ZIP Realty, Inc-Houston District - Humble, TX

Hi Karen,

Great post and awesome comments. My question for you is how did a 'boutique realtor' decide to write a post about a discount (limited service) firm? I am curious as to what sparked your interest.

Mar 29, 2011 05:51 AM

Karen Fiddler, Broker/Owner

Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA

Orange County & Lake Arrowhead, CA (949)510-2395

Larry: Thanks....great comments weren't they?

Tiffany: That's a great point....taking us seriously...if we take ourselves seriously

Glenn: yes, I've talked with them about this also...so I know what you mean. A referral site is actually a good idea.

Christine: It seems these come and go every once in a while.

Charles: I wonder about the "boutique" label? I think I'm in the trenches, but full service to be sure. I happened to read an ariticle about Zip and the Master Mind challenge is about Redfin, so I had it on my mind.

Mar 29, 2011 10:53 AM

Charles Gardner-Realtor/Investor

ZIP Realty, Inc-Houston District - Humble, TX

Hi Karen,

Thanks and keep up the great work. You really have AR's thinking.

Mar 29, 2011 05:18 PM

Brian White

Chandler, AZ

Matthew #40, Wish you the best of luck, but you got your Arizona Real Estate license in December of 2010 so I don't think you are in a position yet to know who the "clowns" are. One of those "clowns", or someone from another brokerage could make you their "clown" if you're not careful.

The point is, you're new, it's important to show a little respect to other Realtors until they show you something either way. Every office has their weak and strong agents and you might not yet be in the position to know who that is until it's too late.

Apr 02, 2011 06:46 AM

Karen Fiddler, Broker/Owner

Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA

Orange County & Lake Arrowhead, CA (949)510-2395

Patti: Thank you for stopping and writing such a thoughtful comment. Very interesting perspective and somewhat what I thought was going on. I'm glad you are happy in your new situation...that's great! I think you verified that the experienced, good agents realize they can make more money somewhere else and leave.

Apr 05, 2011 07:20 AM

Tim Lorenz

TIM LORENZ - Elite Home Sales Team - Mission Viejo, CA

949 874-2247

I have been in the business a long time it takes a lot to be successful in this business. If the Redfin and Zip were going to be successful it would only be in a down market. If they cannot make it here they cannot make it anywhere.

Jul 01, 2011 06:01 PM

Lynn B. Friedman CRS Atlanta, GA 404-617-6375

Atlanta Homes ODAT Realty - Love our Great City - Love our Clients! Buckhead - Midtown - Westside - Atlanta, GA

Concierge Service for Our Atlanta Sellers & Buyers

Dear Karen -

Usually, I agree with what you have said. This time I don't agree.
It seemed to me that the ZIP model worked when there was volume and the agents could go for volume not high end. Second, it isn't closing just regrouping -- for now anyway. It may not be the concept that doesn't work but the execution. Like Karen Ann Stone (#4), I listened to someone who worked with ZIP. I agree with Karen Ann's statements. There are other models that are not really "discount" -- more PAY AS YOU GO types.

Check out RHONDA DUFFY based in Atlanta - she is the epitome of the limited brokerage. The last time I checked her plan, the Seller could choose almost everything for a fee - like an a la carte menu. Listing only, one fee -- review contract - additional fee -- talk to the listing agent -- another fee. She has it COMPLETELY broken down. Call her office and no one answers -- fully computerized. She tells agents where to send contracts in a recording and if you want to leave a message for her -- you must wait through about 10 minutes of her computerized instructions. (Well, it felt like 10 but may only have been 4 or 5 minutes ...) I didn't have an offer - just wanted to tell her the listing location had a lot of trash all around the front door. Stuff that had been through two or three rainstorms. I guess that client hadn't paid for any physical oversight of the property. Choosing an agent like Rhonda isn't discount in the way Marshall's or Big Lots are discount -- more like buy as many cookies at the bakery as you want - not a package.

Have a happy day -
Lynn

Jul 01, 2011 06:01 PM

Ralph Gorgoglione

Metro Life Homes - Palm Springs, CA

California and Hawaii Real Estate (310) 497-9407

It just doesn't work.

A rebate is a very novel idea, but when you get right down to it, in a market that has alot of drama surrounding it, buyers and sellers gravitate towards someone who they TRUST.

Someone local who has expertise is a classic that can't be discounted and has more value than a mere discount.

Jul 01, 2011 06:03 PM

Mike Mayer

Mike Mayer, Broker/Owner - i List For Less Realty, LLC - Lafayette, LA

Karen you seem to be confusing two (2) totally separate and distinct terms:

Rebating, and
Discount Brokerage Service Providers

These are completely unrelated and should neither be confused nor used interchangeably. Though Zip Realty rebated commissions (in those states that permitted rebating - more on this later), it did offer consumers a full line of services. I think you might be confusing the term discounting with rebating.

Rebating commissions is just that. An agent or firm elects to rebate a portion of the commission earned back to their client or principal. This has NO bearing on the level of service being rendered or provided. Ten (10) states forbid buyers' brokers from rebating a portion of the sales commission to the consumer. Visit the DOJ site for additional details.

Discount Brokerage Service Providers are a different matter altogether. This type of firm only provides partial or limited service. In many cases these companies accept a modest fee, usually under $500, to simply place a home in a local MLS. You might consider these as a MLS FSBO.

Some Discount Brokers may provide a yard sign or lock box, but in the majority of situations, what differentiates these fims is that they DO NOT REPRESENT the Seller. They typically do not handle any negotiations or render counsel or advice. The Seller is responsible for any dealings with the Buyer's Agent (if one exists), coordinating all showing appointments, handling any repair negotiations, and comprehending all Closing details and requirements.

Not all states permit Discount Brokerage. Eight (8) states require consumers to buy more services from sellers' brokers than they may want, with no option to waive the extra items. Visit the DOJ site for full details outlining the laws in place that define Discount, Limited Service, and Full Service Brokerage models.

Take my situation, for instance: I'm licensed in Texas (Common Law) where I am allowed to rebate commissions although required to offer 'minimal services' and not permitted to operate as a "Discount" Broker. In Louisiana (Napoleonic Code) however, just the opposite is true: I cannot rebate any commission, yet I am permitted to operate under a discount model if I so chose (but prefer not to).

Confused? This is likely one of many reasons that the average consumer misunderstands our profession. Each state incorporates different laws and requires different provisions as to how properties are marketed and sold. This helps validate the importance of our profession and demonstrates the need for consumers to hire a real estate professional to assist with a purchase or sale.

Jul 01, 2011 09:21 PM

Karen Fiddler, Broker/Owner

Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA

Orange County & Lake Arrowhead, CA (949)510-2395

Patti: Companies always need to listen to shareholders...but there can be a balance.

Tim: That's what I would think....people watching money everywhere they can

Lynn: Could be execution....but I think that it's perception and that's tough to change

Ralph: Cradle to grave representation...and service and value. That's what we offer and I do think people respect that

Mike: I disagree....what you describe as "discount" we call "limited service" like the Help-U-Sells...I always associate the word discount with the price you pay for something, not the service you get for it.

Jul 02, 2011 04:17 AM

Mike Mayer

Mike Mayer, Broker/Owner - i List For Less Realty, LLC - Lafayette, LA

Nothing wrong with agreeing we agree to disagree. However, Zip Realty never discounted their service, though they did rebate their commission(s) to clients or principals. As Patty #89, a former Zip Realty Agent alluded, Zip offered a full range of services. They were not a 'Discount Brokerage' though perhaps perceived as one. They were a full service brokerage that simply offered a rebate on earnings.

I use the term as legally described by the Department of Justice, not the one 'coined' by agents. It's akin to a legal name versus a nickname; while someone might 'call' you by your nickname, it's your legal name that matters and required on formal documents. If a firm represents the seller through the transaction, then legally they are not a discount broker.

Jul 02, 2011 05:22 AM

Karen Fiddler, Broker/Owner

Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA

Orange County & Lake Arrowhead, CA (949)510-2395

Mike: In California, we have "limited service" contracts and "full service" a "discount" broker can do either. Discount is price not service. Not "coined" just my market. Either way....they don't work and the consumer has realized that.

Jul 02, 2011 05:47 AM

Mike Mayer

Mike Mayer, Broker/Owner - i List For Less Realty, LLC - Lafayette, LA

Karen, as a Broker you should realize that the mere mention that a price is being "discounted" is an Anti-Trust violation as doing so implies "reduction from an established price" ("price fixing"). Discounting is NEVER based on price; it IS based on service, be it reduced or limited in scope. And while there is generally a reduction in the amount a consumer pays for less-than-full-service, this is NOT considered by the Justice Department as discounting.

As you mentioned two (2) forms of California contracts, you may wish to re-acquaint yourself with California Business and Professions Code section 10026 which defines a "limited service contract" from a service perspective, not a price perspective.

In response to your statement that "Either way....they don't work and the consumer has realized that" I will simply advise this is inaccurate as a generalization. Redfin, Assist2Sell and various others have been operating successfully for many years throughout the country. Zip was a rebater, not a discounter and assuming that this model failed due to its practice of rebating commissions may or may not be totally accurate. As an outsider, we shouldn't judge or make assumptions without being in possession of all the facts.

Personally, I've never worried over what other firms do or don't do in my market. Competition is healthy. New business models have emerged that allow consumers to save money when they buy or sell a home. Let the consumer choose the level of service(s) desired and what they're willing to pay for those services.

Jul 02, 2011 07:36 AM

Karen Fiddler, Broker/Owner

Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA

Orange County & Lake Arrowhead, CA (949)510-2395

Mike: I'm not going to argue with you.....so have a nice 4th of July.

Jul 02, 2011 08:11 AM

Mike Mayer

Mike Mayer, Broker/Owner - i List For Less Realty, LLC - Lafayette, LA

Have an awesome weekend yourself!

Jul 02, 2011 10:45 AM