When Kevin Lucido had his real estate agent draw up a contract on a new house just two blocks away, he didn’t want to pay full price. So he sought out a firm that offered a rebate to help cover closing costs. The day he closed on his four-bedroom Colonial in Oakton, Mr. Lucido got about $10,000 back. His agent received a 2 percent commission.
“Because the cost of real estate is so high, the commissions are high,” Mr. Lucido says. “I didn’t want to spend that much money, especially since my wife and I were doing most of the work ourselves. I just needed a [real estate agent] to protect our interests.”
Buyers and sellers are facing more choices than ever, thanks to the Internet, which has opened the door to discount brokers, flat-fee real estate programs, rebate offers — even $1,000 gift cards.
The menu of nontraditional real estate services is a change from the traditional method of buying and selling houses. Real estate agents typically work on commission, averaging about 6 percent, with the proceeds split between the listing agent and the buyer’s agent.
New startups are shaking up that business model, with agents offering deep discounts and cash back to customers. Mr. Lucido’s agent, Daniel Odio, started DROdio Real Estate Inc., based in Arlington, and a spinoff, Rebate Reps, to tap into that market.
Mr. Odio relies heavily on the Web, using Internet technology to market and sell houses. He touts rebates that shave 1 percent to 2 percent off standard commissions. He says he can offer the savings because he uses the Internet to make it easier to search for a new house.
Real estate agents on his team use laptops and send e-mail to customers to alert them when homes that might interest them become available.
Listing agents craft a Web page for each listing, offering extensive pictures inside and outside the home, so homeowners can browse online before deciding to view the property in person.
That eliminates a lot of wasted time spent looking at properties, Mr. Odio says.
“I can spend all day driving around in a car, or I can give the [buyers] the address and all the information and let the customer decide if they want to look at a house,” he says.
He designed his company to make the process quicker, offering hefty rebates to bring customers in the door.
His company promises rebates of 2 percent on new homes and 1 percent on existing homes. A 2 percent rebate on an $800,000 house adds up to $16,000. The money is credited at closing. For an existing home, that would mean $8,000 in savings for the seller.
“There is a big culture against giving rebates,” Mr. Odio says, because some traditional agents view such practices as a threat.
“There’s no built-in incentive to offer one since it comes out of their commission,” he says. “It’s very frustrating to see people throwing their money away.”
Nontraditional real estate services advertise heavily online but still represent just a fraction of the $61 billion market. Discounting transactions totaled just 2 percent of home sales, according to results of a study issued this summer by the U.S. Government Accountability Office.
To generate more business, giant lenders such as Lending Tree.com and its subsidiary Realestate.com offer additional incentives to use their brokers.
Customers who use agents listed with Realestate.com can receive gift cards to Home Depot and American Express valued up to $2,000 depending on the price of the home.
The two companies also offer cash back and gift cards through an agreement with wholesaler Costco Corp. to customers who use agents listed with the membership company.
A similar agreement with a handful of airlines partnering with Realestate.com allows buyers to rack up mileage for using agents who are in their network or their financing program.
The issue has sparked some controversy. The National Association of Realtors has come under fire for taking on discounters in some states. Lawsuits have been threatened on both sides.
The NAR has adopted a buyer-beware attitude, encouraging homeowners to check out companies carefully to make sure the traditional services they expect will be offered.
Some firms that offer sliding-scale commissions to sellers might have marketing plans but may not hold open houses or follow up to get a home sold, the NAR warns. Realtors, members of NAR, urge buyers to ask for specifics and make sure the agent understands the local market. Find out which newspapers will be used for ads and when an open house is planned, they advise.
“In some senses, you get what you pay for,” says Tom Stevens, NAR president. “If you’re not willing to pay a reasonable commission, you’re not going to get some of the services you require.”
Homeowners need to determine how long they can wait for a buyer. If they have a bid on another house and need to close in a hurry, they are going to need heavy marketing, Mr. Stevens says.
Mr. Stevens says home buying is “too big a transaction not to work with an expert.”
Representatives of companies such as DROdio Realty and ZipRealty Inc., which offer cash back to their clients, say the model will shake up the industry, bringing long-needed changes that will benefit the consumer.
By tapping into Web-based technology, homeowners can narrow their search more quickly. The savings translates into cash back at closing, says Patrick Lashinsky, senior vice president of ZipRealty, a brokerage that advertises savings of up to 25 percent in commission fees.
“We do everything everyone else does, but we do it for a lot less,” Mr. Lashinsky says.
For sellers, the firm offers 1 percent cash back at closing. For buyers, the company returns 20 percent of the commission to the buyer. That means on a $500,000 home purchase, the ZipRealty buyer’s agent receives 3 percent or $15,000 — $3,000 of which is credited at closing to the buyer, Mr. Lashinsky says.
“Even though the home prices have gone up, the commissions have stayed the same,” Mr. Lashinsky says. “There’s been no change since the Eisenhower administration. It’s overdue.”