Discount Brokerages Going Broke | Print |  E-mail
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Friday, 15 April 2011 09:31

 

By Carl Medford, CRS

Special to The Forum

 

Back in the heyday of rocketing home prices, discount brokerages sprouted like mushrooms on a midnight lawn and commission “discounts” and “rebates” were rampant.

Backed by the new power of the Internet, companies such as Zip Realty garnered market share as they started rebating monies back to buyers completing transactions with them. Others like Redfin joined the game in an effort to change the commission landscape.


In the new market, however, it’s a different story. With many smaller discount brokerages going the way of the dodo bird, the big players are changing their tune as well.


Zip Realty is pulling out of 11 markets across the nation because their discount model is losing them money — $5.1 million dollars in third quarter 2010.


In the press release announcing their change in strategy, they stated they were beginning to emphasize personalized service and the experience of their agents over the “classic” commission rebates and discounted fees upon which the company was founded. Read, “Discount commissions are losing us money; we need to switch to a more traditional brokerage style.”


“Truth is,” declares Lori Parks of Prudential in Castro Valley, “current lower prices and resulting diminished commissions don’t leave much room for rebates, if any.”


Redfin has also drawn lines in the sand by refusing to handle transactions that won’t net them a profit. They insist they need $6,000 per transaction and that they’ll offer rebates above that amount. Want to buy a home in San Leandro under $200,000? They won’t handle it. Why?

 

Their website states, “Because these homes don’t generate enough of a commission to cover our $6,000 minimum fee.” They will, however, gladly refer the transaction out to a “partner agent” who’s willing to work for less. In other words, they’ll get a percentage of the transaction without taking the hit to their bottom line. Want to buy a short sale through Redfin? Sorry. They refer those out as well.


They have real cause for concern: of the 3,118 transaction sides in the Central County over the past 12 months, Zip Realty accounted for only 7 sales and Redfin racked up a whopping ... 4. Contrast that with the dedicated Realtors of the Central Alameda County who, day-in-and-day-out, are working to help buyers and sellers regardless of the list price or the fact that it may or may not be a short sale. These Realtors won’t offer a “rebate,” but you can count on full service and ... a sale.


Carl Medford is a licensed Realtor with Prudential California Realty in Castro Valley and a licensed general contractor. This article is sponsored by the Central County Marketing Association at www.ccmgtoday.com


 

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