Commission discounts & rebates: the end of real estate as we know it?

Under the traditional model of real estate, the buyer agent and listing agent split the commission of 6%, based on the price of the home. However, with brokers trying many different tactics to stay competitive, rebate real estate has started to catch on. While rebating a portion of the commission back to the buyer has been done by agents for some time, this shift has been gaining momentum recently as technology has put more tools in the home buyer’s toolkit.

For instance, many home buyers are relying less and less on agents to find and show them homes and are doing part of the legwork themselves. In their 2014 Profile of Home Buyers and Sellers, the National Association of Realtors found that 92% of buyers use the internet in some way in their home search process. From using online real estate search tools to narrow down the list of potential homes, to dropping in at open houses and researching comparable homes, more and more home buyers are taking the first steps of the process now on their own; steps that previously would have required a real estate agent.

Many agents have recognized this, and in return for doing less work upfront, are willing to either reduce their commission or rebate a portion of it back to the buyer. The rebates vary, from some 20% to 50% or even 100%.

While some prospective home buyers don’t necessarily want to do more work themselves (it’s why they hire a real estate professional, after all) -- others who purchase homes more frequently such as real estate investors and military servicemen and women, really benefit from the reduced or rebated commissions.

Full disclosure, I work for a startup that facilitates buyer rebates (and it’s included below). Of course this is by no means an exhaustive list of potential options, but here are a few of the ways companies are changing the way real estate services are paid for:

Discount brokers. Discount real estate brokers can be either full-service or limited service brokers, but offer discounts upfront on their services. Since commissions are negotiable, technically any real estate agent could be a discount broker if you asked them to. Discount brokers such as My Dog Tess Realty will list your home for a reduced commission (1% plus the buyer agent’s commission, compared to the typical 6%) or they will put your home in the MLS for a flat fee.

Rebate brokers. Rebate brokerages typically work with home buyers in offering to rebate a portion of the commission back to them. Companies such as RedFin and Open Listings offer anywhere between 20%-50% back based on the price of the home. However, based on the Open Listings website, if you wanted to see a home in person, they would contact the seller for you to arrange it but couldn’t guarantee that you’d actually be granted access. These companies use technology to bridge the gap and reduce overhead costs in order to facilitate the rebate, but in some cases this also means more limited services.

A la carte marketplaces: Partner agents on a la carte marketplaces, such as SoloPro, offer their services piecemeal on a fee-per-service basis. The buyer is able to choose which service(s) they need and customize the experience to their desired service level. In most cases, they pay upfront for these services, though with the SoloPro platform, they are then also rebated 100% of the buyer’s agent commission at closing. These marketplaces serve to connect buyers and agents, but are not brokerages and don’t hold a real estate license.

Either way you look at it, it’s clear that technology is changing the real estate landscape. Even though this new model of rebating the real estate commission back to the homebuyer is starting to catch on, I still think traditional real estate brokerage has its place too. After all, not everyone wants to go the discount route - some would still prefer to outsource the work of purchasing or listing a home to a qualified real estate professional. Actually, therein lies the rub… real estate isn’t, and shouldn’t be, one-size-fits-all. It’s completely necessary that a first time homebuyer has a full-service real estate agent guiding them along in the process; but for an investor on the complete opposite end of the spectrum, that is definitely not necessary. These changes in the way agents are paid bring options, and more options for consumers are hardly ever a bad thing.