Traditional real estate brokerages operate just like Blockbuster did.
Homeowners spend about $80 billion dollars a year on real estate commissions. The vast majority of these costs are completely unnecessary, but are imposed on homeowners as a result of the very costly traditional brokerage infrastructure and business model. ReMax has 7,841 brick and mortar locations. These locations are for the benefit the broker, not the homeowner. The broker is not in the business of helping homeowners retain as much of their hard-won equity as possible, they are in the business of recruiting as many agents as possible, and charging as much as possible as a matter of focus but also to pay for all the overhead that’s involved in this model of doing business. If we distill home selling down to what matters (expertise and service), and we align it with the needs of the homeowner (retaining as much equity as possible), we can accomplish this for a fraction of the cost by deploying a business model that focuses only on delivering exceptional service, and not sinecure salaries, overhead and other superfluous costs not at all essential to helping homeowners. Of the $80B, if 80% of it is totally unnecessary, in ten years we could save homeowners 640 billion dollars. That is to say we could increase the countries net worth per capita and reduce debts by putting hard-won equity back into the pockets of homeowners by simply doing away with inflated fees and the absurd infrastructures and organizations that encourage them. Lets take a look at the similarities between Blockbuster, traditional real estate brokerages, and the more customer-centric alternative brokerages that focus on empowering homeowners.
In 2000 Blockbuster imposed almost $800 million in late fees onto its customers, which accounted for roughly 16% of its revenue, according to the Associated Press. A late fee is a cost associated with shelf space and availability — all attributes of a brick and mortar model of business. Of course they got crushed by Netflix, who operated virtually but was still able to deliver the same product, rendering the old model and all its necessary costs totally obsolete. Blockbuster’s model was like the current traditional broker model is today: They need a lot of space to shelve a bunch of DVDs (agents), when a smaller percentage of new releases and classics generate any meaningful revenues (87% of agents fail). The traditional brokerage business imposes all these costs onto the homeowner. The costs accommodate the old fashioned model, but they are in no way necessary in the 21st century.
The traditional 6% brokerage is an anachronism. It’s an outdated model from a time when people would walk into a Main Street brokerage to flip through a binder of listings, before the internet, before Zillow — before email — before Docusign. You’ll have noticed there are less and less Realtor ads on bus benches. I believe in five to ten years time, the traditional brokerage will be extinct, as well as the Realtor sales-person profession to the extent that they can’t be untangled.
Nobody is saying Realtors don’t add value or can be replaced by artificial intelligence or something. What is said is that they are paid in gross excess of the value they do provide, and percentage fees cause their payment to fluctuate wildly when the effort on a transaction by transaction basis is abut the same. There is nothing that should entail paying twice as much to sell a $500,000 home than a $250,000 home.
Enter the alt-brokerage. Firms like homie are able to serve their customers with greater professionalism and efficiency at a fraction of the overhead, and pass the savings onto the consumer. Alternatives are emerging: Trelora, homie, Reali, Rex, Homebay, Door, and more.
Homie.com, a full-service real estate brokerage in Utah, can help everyone in the state of Utah sell their home with just one location managed by a handful of employees. They charge $199 up front and $1299 at closing. That isn’t to say there is some kind of compromise, they have salaried agents in close proximity to all the markets they operate. Similarly, Uber doesn’t need a physical location in Pittsburgh to be able to service that location. There is nothing involved in a real estate transaction that necessitates a brick and mortar location. The days of walking into a brokerage to flip through a binder of listings are over.
Traditional brokerages have to do a lot of guesswork, lease a bunch of space and attempt to fill it with agents that may or may not succeed. The median real estate agent salary is around $43,000, as noted above and the average Realtor fails. It is very expensive endeavor, growing and scaling a company through recruiting and attracting agents with big fancy offices. Redfin salaries their agents and hire as needed. Their agents are earning higher than the average, and are generating a predictable and reliable amount in company dollars. Redfin and the like can grow and scale in proportion to profits gained and reinvested. This produces far less costs to impose onto homeowners because it doesn’t neglect the homeowners the way Berkshire Hathaway, Compass, Remax, Redfin, etc., neglect the homeowners and focus on their recruiting salespeople.
Alt-brokers use a branded, inbound marketing approach, versus the outbound sales force approach used in industries like real estate, Amway, Herbalife, ACN, etc. Traditional brokerages want to acquire agents to acquire the one-to-one relationships they have. Alternative brokerages put their brand first, develop its reputation and relationships, and hire Realtors as employees.
Door, Trelora, Rex, Homebay, and Reali, to name a few, are full-service, not to be confused with the “discount brokerages” of yesteryear, e.g., helpUsell, flatfee4u, etc. These firms are advanced, efficient, and highly intelligent. They do everything a traditional agent does and more, without all the superfluous costs.
Tony Hawk sums it up:
