Redfin Redux

By
Real Estate Broker/Owner with Ryan Taylor Homes

By the way, I'm not picking on Redfin. If you Google "rebate" and "real estate" you get about 495,000 hits. There are a lot of firms and agents out there on the rebate bandwagon.

After my last post, I got a bunch of replies from supporters of rebate models. I would like to comment on these comments.

1. There is a common assumption that the sale price is driven by the commission. For example, if a seller is asking $100,000 and paying a three percent commission, the price would sort of be automatically reduced to, say, $98,000 if the commission were 1 percent instead. THIS IS NOT SO. I have never seen a seller use this "logic." The price is driven by the market, not the commission. Wouldn't it be nice if the price WERE driver by what the seller wants. A perfect world! No foreclosures, not short sales, no disappointment. Prices are driven by the market, not seller's desires OR commissions.

2. Someone said "as long as Redfin is profitable with 1 percent, they have a viable business." Sure. That's true. But my point is that there ENTIRE business model is based on an income stream THAT THEY DON'T CONTROL. When sellers start refusing to pay commissions that are going to be rebated to buyers, Redfin (and the other 494,000 rebaters out there) won't have an income stream.

3. Someone insisted that buyers pay commissions because they pay the money comes from them. Of course the seller gets the proceeds from the buyer. That's how sales work, you see. A buyer pays money for something and then it becomes his. Once the seller has the money, the seller can do whatever he wants with it. One thing he does is pay commissions. The buyer has no control over that. The buyer is not a party to the contract between the seller and listing agent. The buyer has no influence over commissions. THE BUYER DOES NOT PAY THE COMMISSION.

The myth that the buyer pays the commission was started by these rebaters as a way to snag business. It's just not true.

Consider this: If the seller refuses to pay the commission at the settlement table, can the buyer overturn that decision by saying, "Well, I'm really paying the commission so you can't do that"? No. Again, if the seller refuses to pay the commission, who sues? The listing agent sues the seller. Not the buyer. Why! BECAUSE THE SELLER IS THE ONE PAYING THE COMMISSION!!!!

If that doesn't work for you, just ask a FSBO who pays the commission.

Comments (11)

Kathy Vaughan
Ryan Taylor Homes - Annandale, VA

Thoughtful post!

May 27, 2008 10:57 PM
Scott Daniels Florida Real Estate 2.0. Agents Earn 100% Commission.
Florida List For Less Realty, Inc. Broker/Owner. - Cooper City, FL

KV,

There`s plenty of room for everyone...

Redfin is a company geared on VC money.

Eventually, they will look to go public and trade on the NAZ.. 

May 27, 2008 11:02 PM
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

The Seller cannot refuse at the settlement table to pay the commission.  To attempt to do so would constitute a default of the contract and settlement could not take place.   

The contract instructs irrevocably to pay the commission.  The seller agreed in the Contract of Sale to pay the fee and the seller cannot reject that part of the contract.

22. BROKER'S FEE

Seller irrevocably instructs the Settlement Agent to pay the Broker compensation ("Broker's Fee") at

Settlement as set forth in the listing agreement and to disburse the compensation offered by the Listing Company to the Selling Company in writing as of the Contract Date, and the remaining amount of Broker's compensation to the Listing Company.

 

May 27, 2008 11:13 PM
Steve Graham
Inactive - Atlanta, GA

A home buyer is really paying for everything through the sales price, whether it be seller paid closing costs, incentives, promotions, commissions and settlement fees. While it may seem on paper that the seller is paying for these things, it's all accounted for through the sales price.

Jul 04, 2008 06:45 AM
Anonymous
allison

You can say all you want that the "seller pays the commission" but we all know that this transaction cost gets passed on to the consumer. That is business. This is the same as a telephone company passing on the cost of regulatory fees to you and me.  They may be handing the money to the government, but you are the one paying for it. And frankly, 6% transaction cost on the sale of a house, at today's prices, is outrageous. 

Jul 04, 2008 06:49 AM
#5
Holly Weatherwax
Associate Broker, Momentum Realty - Reston, VA
A Great Real Estate Experience

I guess it is all in the eye of the beholder. As a Realtor who has to pay significant fees to remain in business, be licensed, have insurance, pay monthly fees for Multiple List and Key access and who has to front all of the costs for marketing, driving clients around, office space and supplies and more--WITHOUT ANY SORT OF SALARY OR COMPENSATION-- receiving a percentage of 1/2 of the total commission  (we do not, in almost every case, receive the full commmission paid by the seller, it is split 4 ways) seems reasonable.  Yes, the costs are embedded in the total cost of the property, but I have never seen a FSBO willingly reduce the asking price just because they are not planning to pay commissions. It is done, but usually after being suggested by savvy Buyer's Agent who offers them a price and explains why it is lower than what they think it should be. Even in that situation, the savvy Buyer's Agent is stuck doing the work of two agents for the pay of one!

A good Realtor is an asset to your home purchase. They will help you find your home, spend time looking at properties so that you are confident you have found the best home for you,  negoiate a better price and contract terms,  work as your advocate throughout the process, remove many of the stresses of purchase from your shoulders, work closely with the home inspector, the pest control folks, the property owners association, the settlement company and the seller's agent/seller.  Sure, you can do these things, but most people have jobs--and don't have the time or knowledge to deal with most of this. I have had many a client who previously purchased a  house without a buyer agent say that they will never do it again without my help.

That old adage 'You get what you pay for' is true in Real Estate, too!

Jul 05, 2008 03:38 AM
Jason Lopez
SmartRealty Solutions - San Diego, CA

"A home buyer is really paying for everything through the sale price".  Really?  Let's take it a step farther...isn't the lender paying for everything?  They give the money to the buyer, right?  Look, the seller pays the commission.  They agree to pay a percentage of THEIR NET PROCEEDS to the listing broker.  If they sold FSBO they would keep the money, right?  The seller agreed to give up a portion to the broker, period.  The buyer does not pay the broker, except in rare circumstances, nor do they "finance" a portion to be paid to the broker.  The seller get the money and they give it to their broker. 

Why all the symantics with this topic?  I agree that there is room for everyone and if companies take this path, then fine.  But's let's call it what it is.  If it was the best way to transact real estate then everyone would be doing it that way.  SOme companies , agents, and brokers have nothing else to offer so they adopt a "New marketing plan or business model".  Fine, but show me how this makes it better for all involved. 

Jul 07, 2008 01:09 PM
Gene Allen
Fathom Realty - Cary, NC
Realty Consultant for Cary Real Estate

The bottom line is Redfin is not our friend unless you are into discount fees.  Personally I can't operate like that.

Jul 07, 2008 01:34 PM
Eric Egeland
RE/MAX SUBURBAN - Libertyville, IL
SFR, e-PRO, CDPE

Great post Kathy.

You have some excellent points. Redfin just opened here in Chicagoland, I think they are going to have a tough time in our market.

Jul 09, 2008 09:10 AM
Marlow Harris
Seattle Dream Homes - Seattle, WA

It may all be moot now that Redfin is having so many financial difficulties.  On Oct. 13th, they laid off 20% of their employees.

Oct 15, 2008 08:20 PM
Pat Fenn
Marketing Specialist for CJ Realty Group/Cindy Jones Broker - Springfield, VA
  Stumbled across your old blog but see you left Active Rain awhile ago.
Oct 24, 2012 11:41 AM