The Problem With Redfin Direct
Are buyer’s agent’s commissions built-into the asking price?
In other words, if you waved a wand and all buyers-agents vanished, would selling prices across the country come down by their 2.5–3% fee?
This proposition has a huge assumption:
Buyers agents are worth 2.5–3%.
Nobody selling a home should accept that they are, that fee is severely inflated and Redfin is not doing sellers a favor by encouraging sellers to accept lesser offers relative to an inflated fee.
I also don’t think there is any evidence to suggest that most offers without a buyer agent across the country have consciously deducted the 2.5% buyer agent fee. This is a marketing ploy Redfin is implanting into the minds of people, which wills it into existence when it really doesn’t have to. If a world without buyers agents wouldn’t reduce average selling prices than there is no need to agree to a lower price via Redfin Direct.
Could you imagine a person selling by-owner, and the buyer writes an offer and says, “Hey, I see you’re representing yourself, therefore you’re not paying a listing agent. How about lowering the selling price by 1.5% since a listing agent is worth 2.5%? That seems fair.”
The appropriate response from that seller should be, “No, I listed by-owner because listing agents aren’t worth 2.5%, so I do not accept your proposition.”
JC Penney would markup the prices right before “discounting” them.
The fixed 6% commission is an arbitrary, Realtor-made construct. So it is a total illusion that there therefore would be wiggle room without it. Demonstrate a buyer-agent is worth 3%. Otherwise the stupid financial game sellers are playing is accept an overpriced fee as the benchmark, and then needlessly give up equity because the buyer doesn’t have the overpriced middleman in the way.
I’ve defended Redfin in the same way. When they arrived on the scene, traditional brokerages referred to them as a discount broker. Like JC Penney, we can’t accept 6% as the norm and then refer to everything efficient and fairly priced as a discount.
A world without inflated fees.
When Redfin arrived on the scene, they offered buyers a commission rebate. I remember thinking, if sellers are paying commission in such gross excess that half of it can be rebated back to the buyer, why don’t we just reduce buyer-agent fees?
The Cohen Milstein Class action lawsuit filed against the National Association of Realtors and all the publicly traded brokerages, looks to solve the inflated fees problem once and for everybody. They are seeking a permanent injunction against section 16 of the Clayton Act, that would ban sellers from paying their buyer’s agent. This would create a true free market, one where buyer’s agents can’t hold their buyer hostage for a 2.5% fee, and we no longer play money shuffling games with inflated fees.
Overnight we would see what buyer’s agents are really worth, and can have a more accurate and less financially wasteful discussion about how much to reduce a sales price in the absence of a buyer-agent.