Cut-Rate Brokers Grab Slice of Biz
Despite the upheavals that saw former Foxtons chief executive Glenn Cohen resign last month, the discount brokerage has plans for local and national expansion, and plenty of competition from other cut-price companies.
The New York area is only one of the battlegrounds for the many discount and fee-for-service brokerages seeking to grab market share and rile traditional brokers in the process. Companies making the most noise include Help-U-Sell Real Estate, ForSaleByOwner.com, and Exit Realty.
Help-U-Sell Real Estate, based in Syosset, Long Island, is among the most aggressive discount operations. Since Rick O’Neil, formerly an executive with Century 21 in Manhattan, took the helm in 1999, the company has grown 450 percent, he said.
The company offers a fee-for-service brokerage model where sellers select from a menu of real estate services that includes signage, marketing, negotiation, pre-qualifying buyers, and advertising.
In the last year, Help-U-Sell has nearly doubled its franchises nationwide, and has about 500 offices, many in California and Florida.
Although there are nine franchises on Long Island alone, O’Neil acknowledges that the main reason the company is headquartered in Syosset is because he lives there. Help-U-Sell also has six offices in New Jersey, and O’Neil said there are plans to enter New York City soon.
“I’ve just had several meetings discussing that,” he said. “We want to come out with a splash there, and we’re on the verge of being able to do that.”
Under the company’s business model, agents are not assigned to sell a specific property. Instead, they perform specific tasks, such as negotiating for one property and marketing for another. Help-U-Sell doesn’t get involved in showing homes.
Overall, O’Neil claimed a typical office might have five or six agents doing what 50 agents would do in a traditional real estate office. He claimed a typical Help-U-Sell commission might be 30 to 40 percent of a traditional commission. Individual brokers set their own fees based on local markets, he said.
O’Neil also said that under his business model, sellers of more expensive homes don’t pay more than sellers of less expensive ones.
“With Foxtons or the traditional brokerage model, you’re still paying more for the $800,000 home versus the $300,000 home, even though the cost of delivery is the same,” he said. “Our fee is not based on what the property sells for.”
O’Neil said the fee-for service model particularly appeals to affluent baby boomers. “They’ve been through transactions before and they are savvy and don’t want to pay commissions if they don’t have to,” he said.
ForSaleByOwner.com is also trying to grab market share from brokers. Last month, the company reported a 57.5 percent increase in homes listed on its Web site for more than $1 million. The number of homes in that price range jumped to 156, up from 99 the year before. The most expensive property now listed on the site is a $5.5 million home in the Hamptons.
A customer survey by the company showed that 35 percent of people who listed property on the site last year had annual household incomes of more than $100,000.
“Upmarket sellers are realizing that there’s no reason to share the commission with a real estate agent in home sales transactions,” said COO Colby Sambrotto. “The numbers reflect a shift in consumer attitudes.”
But not everyone agrees there has been an overall rise in the number of sales by owners. While some observers note that discount brokerages and FSBO sites usually flourish in strong sellers’ markets, recent data from the National
Association of Realtors shows the number of people electing to sell “by owner” actually declined despite the strong market.
In 2003, according to NAR’s Profile of Homebuyers and Sellers, only 14 percent of sellers sold their homes without the help of a real estate agent. Putting it a little differently, in 2003, the number of people who sold their house on a “for sale by owner” basis actually decreased by 30 percent.
Another company – not exactly a discount brokerage – looking to wrest market share from the traditional brokerage model is Exit Realty. The company, which started in Canada, has more than 400 locations in the U.S., including franchise offices in Staten Island, Ozone Park in Queens, Jersey City and Newark.
Exit’s business model is based on residual incentives. Agents recruit others into the company and earn up to 10 percent of those recruits’ gross commissions, up to $10,000 per recruited agent annually.
Competitors charge that the company is a multilevel marketing scheme, but founder and chief Steve Morris characterizes it differently, as a “third dimension,” to realty brokerages after listings and sales.
The company’s number of agents grew 71 percent last year and its residual formula paid out $9.1 million, according to Morris. The highest individual earnings total from residuals was $274,000; one Exit recruiter/agent brought in 74 new agents, according to the company.
Exit Realty first entered the United States in 1998, two years after starting operations in Canada. Morris said he chose the name “Exit” because he thought it would be a brilliant marketing scheme – the average person sees about 250 exit signs each day. And he likes knowing his brand name is located above doorways inside his competitors’ offices, even at traditional brokerages.