Can a startup Miami brokerage make the flat-fee model work?

Home61 is focusing on lower-priced homes, and hoping to upend an old model

Feb.February 22, 2018 05:30 PM

From left, Home61 agents Pilar Duque, Gustavo Berastegui and Manfred Velette

A Miami startup brokerage said it will begin charging a flat fee to home sellers, trying to lure customers away from larger agencies that operate on a percentage-based commission scale.

Home61, a technology driven brokerage, will charge the $6,100 fee on the seller side for every transaction no matter the sale price. It is the equivalent of the standard 3 percent commission a broker would earn selling a $200,000 property. So, a $500,000 home sale would save the seller $9,000, said Home61 founder and CEO Olivier Grinda. Home61 focuses on the mass market, with an average sale between $400,000 and $450,000.

The company, which opened in 2015, is trying to seize on a model that major firms in South Florida have refused to adopt, in part they argue, because selling a home is not a one-size-fits-all business.

Home61 will still charge the seller a 3 percent commission to pay the buyer’s agent. So the owner of a $500,000 property would pay a total of $21,100 — $6,100 flat fee plus $15,000 to the buyer’s agent — still less than the traditional 6 percent total, or $30,000.

In the highly competitive brokerage business, upstart Home61 is not the first to try a flat fee. Home Bay, based in San Diego, offers a one-time fee starting at $2,000 for sellers, according to its website. And in England, Purple Bricks uses a flat fee model, charging 849 pounds (currently $1,184) to sellers, or 1,199 pounds ($1,672) in London and surrounding areas, its website shows. The firm also recently entered the California market with a $3,200 seller’s fee, starting with Los Angeles in September; San Diego, Fresno and Sacramento in January; and plans to enter the New York market by the end of June, according to a spokesperson.

But the flat fee commission has yet to really take hold, and industry pros say it’s because the time and effort for brokers differs depending on the property.

Mike Pappas, CEO of the Keyes Company, acknowledges that “in hot markets, there is always a strain on fees.” Still, he said his company operates with the traditional percentage-based commission system.

“What is unique about our industry is we are not selling books or cars that are standard,” he said. “We are selling unique homes — each home is uniquely individual, each seller is uniquely individual and each buyer is uniquely individual, and that is the art of the deal and it takes tremendous expertise.”

Nevertheless, Jay Parker, CEO of Douglas Elliman’s Florida brokerage, acknowledges his agents don’t spend a lot of time or money on listings at the lower end of the market, up to $400,000. “There’s nothing to be said that the concept can’t work if they focus on the lower tiers of the market,” Parker said.

Until now, technology-driven Home61 has focused on the buyer side of the residential market. Now, agents on the seller side will receive a salary plus a bonus for each sale.

The firm has completed $100 million in deals and grown to 65 agents, with plans to reach 100 agents by June, Grinda said. The goal for 2018 is to complete 800 transactions and 200 listings by the end of the year. Even with the flat fee, the three-year-old company says it aims to reach profitability by the end of this year as it expands its volume of transactions.

The brokerage’s goal is to sell at least 200 homes this year and 400 in 2019, Grinda said. It is starting off with four agents on the seller’s side, focusing on houses and condos in the Brickell area and in Coconut Grove, and is recruiting additional agents.

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