New Real Estate Sales Models

There have been a number of innovations to the traditional real estate sales model around the world in the last few years. There has been a signfiicant increase in the number of agencies that will sell a home at a fixed price, usually mush lower than prevailing commission % scales.

A very interesting model that is starting to gain significant momentum in the USA is a company called Redfin. They have been operating since 2006 and I think many realtors in the US thought that they would be a flash in the pan. They are however still going strong and by all accounts are growing.

The model is quite simple. They reimburse to a Buyer 2/3rd’s of the commission that a buyer would otherwise pay. So in circumstances where a buyer would pay 3% commission, 2% is reimbursed.

Buyers commission you might say! What is with that!

Well in the US it is very common for a real estate transaction to have up to 6% commission paid – 3% to a selling agent and 3% to a buyers agent. It is probably the highest in the world (certainly the highest in all of teh markets that Brightfox is involved in) for a standard real estate sale. You will have instances of higher commission paid on off-plan sales in places such as Spain, France and sometimes even in Australia, however this is always paid by the Seller.

So when looking at Redfin and contemplating the affect of a model like this in Australia you first need to realise that the US is starting from a very different place. I think we would all agree that there is a lot of space in 6% commission for some efficiency improvements / cost cutting.

I find the whole issue a very interesting dilema all round. There is no doubt that all property transactions should have a buyer and seller agent involved to best protect both parties. The concept that one agent can act for both parties is in itself impossible (the term ‘agent’ itself means to act on behalf of another party – with the law providing a fiduciary duty to act in the best interests of that party. So how can a single agent act for two parties!) as well as being commerically unworkable. Both parties actually seek different outcomes (one a higher purchase price, the other a lower purchase price). However a 6% transaction fee on commission alone, not to mention stamp duty, legal fees etc, is simply not workable.

Without question the Internet is making it easier for buyers to determine a accurate purchase price for a property. Only a few years ago access to property sale data was the exclusive domain of property professionals. Now websites like www.onthehouse.com.au give it away for free. So I think that the advent of increasingly sophisticated anlaysis websites for buyers to use is perhaps the future for australian real estate rather than the Redfin model. We just don’t have that much ‘fat to cut’ to make the Redfin models commerically viable on a significant scale.

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