One of the “big stories” in yesterday’s Seattle Times, was the piece on Redfin written by Elizabeth Rhodes.
My response is this:
According to the article, Redfin has the ability to reduce the Buyer Agent Fee to 1% of the purchase price. They have an “agent” who never goes to see the property “write up” an offer online, and Redfin gets paid 1% to do that. That assumes that the Buyer Agent fee offered by the seller and the listing company exceeds 1%, which is at present generally the case.
If the buyer only wants to “pay” 1% for Buyer Agent services, if that is the trend, then why wouldn’t I just go out and list property with a 1% Buyer Agent offering in the first place? Why shouldn’t the seller offer 1% and pay only 2% or 3% total fees when he lists the property, with 1% or 2% to the listing agent and 1% to the buyer’s agent?
If the “agent” in Redfin’s backroom is writing an offer without seeing the property for 1%, why wouldn’t the buyer just have the Open House Agent or listing agent write it up for 1% while in the house? At least that agent has seen the house and will know what amenities to write in that might be unique to this property, even if not offered in the mls, like bar stools that match the decor.
Clearly a buyer who can pick a property off the internet, who needs no assistance other than writing an offer and following escrow to closing, can get a real live agent for 1% or even less. Why not use one you can talk with in person inside of the house? If you remove the “responsibility” to assist in property selection from the agent. If you further remove the “responsibility” of the agent to “take care of you” because you are a savvy and informed consumer and don’t need “hand holding”. Then clearly you can negotiate those terms with anyone and still retain the right to “upgrade” the service if needed during the transaction.
The public’s perception that all fees are carved in stone is erroneous. I am concerned that buyers go to less than full service companies, when they can clearly negotiate less than full services with any licensee. Pick the best agent for the job and negotiate the terms. This way if you need greater assistance during the transaction than you thought you might need at the beginning, you have the option to upgrade to what you need, no more and no less.
You are absolutely right. What kind of liability does the “Buyers Agent” have if they haven’t even seen the house? When Redfin has the buyer write the offer and then Redfin “fine tunes” it, what kind of agency is indicated? “No Agency” or Buyers Agent? If “Buyers Agent”, can an agent truly represent a Buyer if the agent hasn’t even seen the home?
Writing up your own offer may be a good option for a house that has been sitting on the market for awhile. But in a hot market, there may not be enough time for the Buyer to research the home, get in, get an offer written, and get it accepted. In this case, the buyer will save 100% of the commission because they won’t have got the house.
100% of zero is still nothing…..
Marlowe,
I have kept most of this on a relatively simple level. But truth is, as you know, the Laws of the State of Washington, at present, do not agree with what the consumer apparently wants. Washington Agency Law charges every licensee with the highest form of representation at first contact. Not all States do that, in fact not many do that.
So if Redfin and 1% commissions are what the consumer wants, that’s OK. But the Agency Law will have to be re-written to start from “Transaction Brokerage” at the 1% fee level and leave it to the consumer to “trade up” if needed.
The way the laws are written at the moment in the State of Washington, the consumer would have to “trade down” as you suggest in your comment, to “no agency”.
I look forward to following this thread, but must add that a 1% fee is HIGH by some standards, including our own. The Real Estate Cafe charges an hourly rate, and since 2000, we have only had a handful of buyer agency fees over $5,000.
We’ve been told more than once we should raise our hourly fee, or establish a menu of minimum fees. A one percent fee would double or triple the deals we are currently working on, even though we are offering agency level services.
I too read the Redfin article. Very interesting model. Anyway, some comments here that need some clarification. There is nothing under the Washington Real Estate Brokerage Relationships Act (aka Agency Law), that appears to undermine the Redfin model. In Washington, the duties of a buyer’s agent to the buyer are limited to the following (unless additional duties are agreed to in writing):
(a) To be loyal to the buyer by taking no action that is adverse or detrimental to the buyer’s interest in a transaction; (Redin OK)
(b) To timely disclose to the buyer any conflicts of interest; (Redfin OK)
(c) To advise the buyer to seek expert advice on matters relating to the transaction that are beyond the agent’s expertise; (Redfin OK)
(d) Not to disclose any confidential information from or about the buyer, except under subpoena or court order, even after termination of the agency relationship; (Redfin OK) and
(e) Unless otherwise agreed to in writing after the buyer’s agent has complied with RCW 18.86.030(1)(f), to make a good faith and continuous effort to find a property for the buyer; except that a buyer’s agent is not obligated to: (i) Seek additional properties to purchase while the buyer is a party to an existing contract to purchase; or (ii) show properties as to which there is no written agreement to pay compensation to the buyer’s agent. (Redfin presumably OK)
The only buyer agent duty that appears even questionable is (e) but I presume that Redfin’s lawyers are smart enough to have the Buyer “agree otherwise” in their online signup form. If so, there is no obligation to help the Buyer find a property beyond the one that the Buyer has decided “on their own” to buy.
Whether this model works will certainly depend on the experiences of buyers. It won’t, however, require a change of law.
Interesting dilemma…
1% is high according to Real Estate Cafe.
3% is high according to Ardell.
What’s a buyer to do? Are real estate transactions so simple that price is the uber factor?
I wonder how Apple, Mercedes, Wild Ginger, English Cut, Mt Pickett Woodworking, etc. would market themselves if they brokered real estate?
Are there agents that are so badass that their clients consider themselves lucky to work with them?
Does the Redfin agent ever leave the building? How does the buyer do a home inspection? Is the seller’s agent supposed to do all of the buyer agent’s work, like be at the home inspection with the buyer? Under our mls rules, an agent cannot leave a buyer unattended in the house. An agent must be present at all times. Someone just got fined $5,000 for leaving buyers in the house without an agent.
Lots of unanswered questions. So far the listing agent is showing the property. Who goes to the property with the buyer when they want to show their parents the home or measure for furniture? Is the seller’s agent supposed to do that too?
I think Real Estate Agents sometimes forget that most people aren’t comfortable negotiating. They like things that are certain, agreed upon, the United States is not like other countries where people go down to the market and barter every day. Most people rarely barter/negoitate in their daily lives (unless your a real estate agent) and so going into real estate transactions makes them uncomfortable.
Ardell,
My guess is that the Listing Agent is supposed to function in the same fashion as when there is no selling agent. Fair? Maybe not, because the LA is not receiving the SOC. Who knows, maybe LA’s will insert clauses in their Listing Agreements that provide extra comp when dealing with a Redfin-type buyer.
Thanks for you input, Russ. For those who don’t know, Russ was the former general counsel to the Washington State Association of Realtors, so his opinion is invaluable.
I’m not sure how other agents business works, but I never make appointments to show property to strangers. They must view my listings with their agents or at the public Open House. I am also rarely available to let unrepresented buyers inspectors or appraisers in. Perhaps next Tuesday, or the week after that, if I don’t have a hair appointment. I am very busy and they’ll just have to work around my schedule. Sorry!
Redfin makes it clear that the Buyer can pay them directly for additional services. Perhaps that’s what the Buyer will have to do. Business is business… none of us is running a charity.
I have other concerns too. On their website, here’s what they say if a Buyer is already working with another agent:
“If an agent has already helped you find a property, Redfin recommends that you make an offer through that agent. If you believe your agent is not delivering the value you expect, you can end your relationship with that agent and sign up for Redfin Direct. In the event you signed a buyer-agent agreement, you must first inform your agent in writing of your decision. Please read this agreement carefully to ensure there are no other obligations to the Agent following termination; if you are unsure about the terms of the agreement, you can call us, or consult with an attorney. If you have not signed a buyer’s agency agreement, you can inform the agent of your decision in any way you like.”
In other words, if your agent has shown you the house you want to buy but they are “not delivering the value you expect” (such as refunding you 2/3rds of the commission!), then sign up for Redfin Direct.
Agents, please make sure you get Agency Agreements signed with each Buyer you work with and it spells out all terms of your agreement with that Buyer.
I’m guessing Redfin is not a Realtor and is not obligated to conduct business according to the Realtor Code of Ethics.
Russ says: “Who knows, maybe LA’s will insert clauses in their Listing Agreements that provide extra comp when dealing with a Redfin-type buyer.”
Interesting comment. Reminds me of the early days of Buyer Agency when seller’s offered 3% to a Sub-Agent but sometimes zero to a Buyer’s Agent. Personally I don’t like that option.
I say list the properties with a 1% offering from the get go, and let the buyer agent’s upgrade the fee in the buyer agency agreement. Or, bring back the “threshold rule” making it impossible for an agent who never enters the property to get paid at all.
As to Washington Law…it depends on the meaning of “represent”. Back to the old client vs. customer definition. To me, the buyer is downgrading from a client relationship to a customer relationship, if the agent never enters the home. I can’t imagine a buyer thinking they are being “represented” by an online contract and invisible agent.
Marlow notes Redfin’s statement: “If an agent has already helped you find a property, Redfin recommends that you make an offer through that agent. If you believe your agent is not delivering the value you expect, you can end your relationship with that agent and sign up for Redfin Direct. In the event you signed a buyer-agent agreement, you must first inform your agent in writing of your decision.”
Marlow,
I’m sure you have seen that two companies were recently fined $5,000 by the mls for encouraging sellers to leave thier listing agreement behind, and showing them how to do that. Looks like this is pretty much the same thing, doesn’t it? Could be fines of $5,000 each for Redfin for every buyer “talked into” negating the contract in play. “Delivering the value ‘you expect’, is not an ‘out’ for most contracts. I’m sure on the listing side that would be a $5,000 fine, so why not on the buyer side?
As someone who was using the Internet actively looking for a home, going to my own open houses, calling selling agents to see homes, etc., for quite a while, Redfin’s service is great – if we were still looking I’d use it in a heartbeat.
I talked to a few agents about whether they’d do what you say above – take a reduced rate just to do paperwork and negotiation – and exactly zero wanted to have any conversation about such a thing (and instead I’d just end up on mailing lists and get sales pitches). Clearly I could have spent all of my time trying to find someone who would do that, working contacts etc., but my time has some value. Redfin’s proposal solves that.
The reason why most agents avoid working for reduced commission “just to do the paperwork”) is that we’re often asked to reduce our commission by 50-75%, yet we still have 100% of the liability. At our firm, we have Errors & Omissions Insurance that we pay, plus additional monies put into a Legal Defense Fund. Those amounts that we pay are the same for every sale, no matter what “salary” we earn on the transaction. If there was a problem down the line, we’re still responsible. Our Errors and Omissions Insurance has a $5000.00 deductable. Our company urges us to consider all of this and keep it in mind when negotiating any commission reductions. I’m assuming most agents at most companies get the same lectures and opinions from their legal council. It’s all a numbers game and it just doesn’t make sense for most agents to not have 100% involvement in the deal, and 100% control over anything that can go wrong — especially since the law may say we’re 100% responsible if the deal goes sideways.
I’m wondering what kind of insurance Redfin has? If they are acting as a Buyer’s Agent, they’re going to be responsible if a Buyer suffers some kind of damage due to their negligence or lack of involvement….
Marlow,
Negligence = Duty owed + failure to perform duty to a certain std of care
The only “duties” that Redfin has are those set out under the Agency Law, under License Law and by their agreement with the Buyer. If they don’t agree to additional duties other than what the law requires, their lack of involvement will not create negligence since there was no duty to be involved (other than to prepare and present the Agreement).
This brings up an interesting issue. There is a very important case in Washington called Cultum v. Heritage House. This case stands for the proposition that real estate licensees have “limited” authority to practice law when filling out preprinted lawyer-reviewed forms on behalf of the principals in a transaction. This authority extends only in the context of the licensee’s brokerage activities and does not allow a licensee to “hang a shingle” to prepare Purchase and Sale Agreements for a fee (that would be competing with lawyers and we don’t like that).
(Caveat: I don’t understand all of the services that Redfin provides but…) One might argue that Redfin is violating this limited license by essentially just writing up the deal. Redfin would certainly counter with the fact that, among other things, they are providing information on available properties and that is what a buyer’s agent does. One might counter that counter that with the fact that you don’t need to be licensed in order to provide online information about available properties and so providing such information is not what the Heritage House court had in mind.
I sound like a lawyer again….drats!
Russ,
Word on the street was you left “lawyering” to become a shill for HomeGain. What happened to that? Weren’t you also with InterActive Visit? Or was it Online Visit? No, wait….. BeCentric??? What fabulous real estate-related thing ARE you doing now days? Besides haunting real estate blogs 🙂
I believe there’s a good reason why buyer agents don’t want to take reduced commissions: I just want people to know that in my experience, “Clearly a buyer who can pick a property off the internet, who needs no assistance other than writing an offer and following escrow to closing, can get a real live agent for 1% or even less” is plain false, and I think for less-aggressive people than me it’s even less likely to be successful.
Marlow,
After the OnlineVist, InterActiveVisit, BeCentric days, I joined a tech company in PDX as counsel and bus dev guy. Now I am back on my own practicing law in Seattle – and doing some other things – :).
Russ
Scott,
When you bought your home after calling the seller’s agent to let you in the properties, did you buy through a seller’s agent? Was there an advantage to not using a Buyer’s Agent? Or did you use a Buyer’s Agent when you purchased after seeing the property with the seller’s agent?
Curious minds want to know.
I’m not a real estate agent, but married to one, who has been an agent for almost 20 yrs. I tried it out ONCE, but found I was using my previous career skills (computer professional) more to help other agents then doing real estate.
That being said, I have been on the purchasing/selling side of about 5 personal transactions. Two of them before I met my present wife. I can tell you buying a home, is, without a doubt the most challenging purchases a person will make. The only thing I can compare it to is buying a car, in that you also sign a purchase agreement, but it misses the high pressured and extremely emotional aspect of buying a car. ( I don’t like buying cars, lol ). The biggest differences is that you have someone who is going to bat for you during the entire process, and if you have a good, well experienced agent, they know how to deal with all the bumps and grinds that can happen on any typical transaction.
(As a backgrounder about me, I am currently living in KY, relocated from Seattle (after 26 yrs living there) moved to Phoenix for 2, now here.) I have had agents as clients, brokers, brokerages, etc…etc. as well as their clients for computer, network, website and various other consultative duties. The horror stories that I have heard, seen, and experienced could be published in a book; too long for a blog posting.
“Buyer beware” is probably the best piece of advise I can give you. Along with that a”Buyers Agency Agreement” is probably the BEST way to get what you want out of a real estate transaction. If you do it yourself, are you prepared to deal with meeting with the seller (who often won’t negotiate with you), writing up the purchase agreement or obtaining a Termite inspection? Is there a Home Owner Association for the respective neighborhood (a potential major “stay away” from this house scenario). Understanding the need for and content of a HUD-1? Also, does the owner have a clear and clean title to the house, if not, what are the alternatives in getting through this HUGE important step in buying this home? What about finding a GOOD mortgage lender? Most locally experienced agents know who are good, these respective agents are not bought off by the various vendors (as some would have you believe). I have seen pen’s, stationary, minor everyday business supplies given to agents as an incentive to use them. BUT, unless they have a VERY efficient process, and staff, they can kill any deal and future business that an agent might refer to them. Oh!, Don’t forget about Flood Certification, Mortgage Insurance, Lead Paint, Mold and Easements.
A GOOD agent will handle the issues, mostly behind the scenes, because they know from experience that ANY buyer would run away due to the seemingly overwhelming nature of all that goes with a transaction. When really, you just want a HOME that you can call your own, and you KNOW you really love the house you are about to buy. I can tell you in seeing various different markets; North West, South West and now, I guess KY is South East. There is a HUGE difference in how transactions are done. (The North West has the most efficient process). Furthermore, don’t forget time lines, any misstep in a transaction can make you OUT of contract, and kill the deal, or require re-negotiating the contract.
A solid, perfect condition home might be what is desired, but may not be the one you end up falling in love with. I can tell you in observing my wife as a buyer’s agent, she picks out 10 homes she thinks might fit a buyer (on her list). But, while she is researching, previewing homes, she makes various calls to the buyer, asks more questions, etc… Most often the home they originally asked for, is opposite of the one they really wanted. This is the key to a good agent; asking the right questions. I have seen her, in almost every case, where she shows them 4 houses and knows in advance, that the 1st one on her list is the one they will buy and that’s how it ends up. Although, she is my wife, I can really see the value in having a LOCALLY experienced agent, locally in the sense that they know the neighborhoods in the respective areas they work. I guess as my wife I have bragging rights..but this is all true. Her reward is not really the money, its a lifetime relationship, its the look on the buyers faces when she hands them the key. This world is full of technology that can remove you from the personableness that is often lacking in life, for me a home is more important than nickel and dimming the transaction to death.
I have heard her speak of various Internet based transaction management companies, mortgage lenders, etc., BUT, they always end in horror stories, and the buyer ends up eating it, has a bad taste in their mouth and on and on.
A word on commissions… Lets say you make an agreement to buy a home for $300,000. The agents BROKER gets ALL the money after the transaction. He/She then disburses those funds in various ways that are common to the real estate agent profession. So, the Broker might get 3%, that’s $9,000. The agent MIGHT see 1.5% of that or even less, at 1.5 that would be $4,500. The typical hours I have see my wife do with any transaction are about 120 man hours, spread out over a 30 to 90 day time frame. This equates to about $37.50 per hr. (some might think that’s a lot) But, if you pay a lawyer that will probably cost you about $300 an hr. If you do it yourself, God help you! : ) Now, the sellers agent gets 3%, another $9,000, this is also disbursed and the agent normally gets the short end of the stick.
In recent times I have seen agents in competitive commission offerings to sellers. You as a buyer don’t pay for their commissions…guess who pays, the seller. In VERY rare occasions have I seen a seller up their price to make up for the difference that they are going to pay in commissions. Usually, the price is set by the seller, and often at some outrageously high price; the house, sits and sits. Meanwhile, the seller might be paying 2 mortgages, the house they are selling and the one they just bought, this can mount up….quickly. As a possible FSBO you could end up paying the bank that $9,000 – 18,000 for nothing. Then you end up lowering the price too low because your desperate. So, there are some very strong benefits to listing your home with an agent. If you happen to be one of the lucky few you might price your house right and have the knowledge you need to make it a smooth transaction, but you are a rare being.
To close on a note about FSBO’s. What I have seen, through my wife, are very desperate home sellers clamoring in anguish to sell their home. A lot of agents might take advantage of this, so a reputable agent is important here. Having hundreds of professionals, that you do not hire, out there trying to sell your home; to your one or two as a FSBO. Are you prepared to be available for most anytime to show your home? The constant cleaning will drive you nuts alone. The house doesn’t seem like a home anymore while you wait…and wait for a possible buyer to call you. You also have to work. An agent is available usually 12-14 hours a day; are you prepared for that? Look at it this way…if the house you buy increases by say 4% a yr. (which is probably a conservative number) and you sell it within 5 yrs you would gain $60,000 on a $300,000 home. So, are you really losing anything significant by using an agent?
Again, I am NOT an agent but have sympathy for all sides.
Gary,
Even I, as an agent, would have to say that you appear to have the most “sympathy” for your agent-wife 🙂 With Valentine’s Day approaching quickly, not a bad place for your head to be!
Your comments are strongly tilted in favor of high cost services. How much an owner has made on their property has no bearing on how much they should pay when they sell that property.
Ardell,
It can be said that you are tilted in favor of low cost services. It can then be said you get what you pay for. My entire point is “Buyer Beware.” From your subjective viewpoint, perhaps you have something to gain by embracing a change that will lower the cost of a transaction? I don’t know for sure? But, looking at the likes of Zillow.com, as an example. I find it very hard to deal with such a HUGE difference in their home value estimations vs. what they claim as within 10%. But if they were within the 10% margin of error and you take a $300,000 home, you would end up LOSING or gaining, depending upon what you price/sell it at. This would mean a potential loss of $30,000. So, where are you paying for lower cost services? You rob yourself. With paying for “high cost services”, as you call it, (I would call it GREAT customer service) it makes no sence. But, you will never really know unless you consistantly track transactions near your home, become well informed about completing on all the processes of a transaction, etc, etc… In other words, become a self-taught Real Estate Agent. btw, sometimes it takes a GOOD salesperson to give you that gentle nudge to buy what you really want. In the end everyone wins! Hey, those of you that want low cost services, go it alone, try it out and report back here…share as I have openly shared. Pat responses don’t prove or mean a thing. Ardell, I mean no ill will, but you could have addressed more of my post then you did, I think the readers of this blog deserve more. To that end I wish you all good house hunting.
Gary,
I’m not in favor of high cost or low cost services. I’m trying to get my own brain around this:
Say someone walks in and asks to see a $900,000 house in the window. I show him that one and only house. He buys it cash with no inspection contingency and closes in three weeks. He’s a busy guy. I only see him that one time when we looked at the property together and the last day when I hand him the key to the front door.
Now I have another client who walked in 4 months ago and has gone out with me 8 times to find a $150,000 condo. Calls me three times a day for 4 months. Has a protracted inspection negotiation. Needs help with understanding the loan process every step of the way. 200 emails back and forth, 60 hours of explaining things.
Reviewing the Association and Resale Certificate and likelihood of a special assesment by studying the Reserve Study…
Why should the first buyer pay $27,000 and the second one $4,500?
There’s something wrong with that picture.
In our market we have condos for $99,900 in Bothell/Kirkland and houses for $1,000,000 give or take. Why should a buyer of the former pay so much less than the buyer for the latter? Often the first time buyer of a low priced condo takes a lot more work than the experienced, high end buyer.
How can the point be “Buyer Beware” if you don’t do things exactly the way they have been done for 50 years? Can’t we at least “try” to think out of the box and talk things through without being labeled? Why is it always “tow the party line” or be an outcast?
Ok, so you go to work for some company, in another profession, and they have product X they sell on the market. Are you going to tell the world that this product only cost X number of dollars to make? Then, while representing that company, are you going to try and find a way to sell that companies product at a lower price? Do you think you would be employed there for very long? This may be somewhat of a distraction from “thinking outside the box”. But, the point is…customer service & efficiencies of execution. So why not make every home the same price? Why not change the laws for every state in the USA that DON’T require you to hang your license in some brokers’ office that make almost ALL the money off ALL of YOUR work? How about allowing ALL Real Estate agents the ability and wherewithal to compete? They have 1.5% to play with, that’s all. Are you advocating to brokers, buyers, sellers or agents? Are you trying to put yourself and everyone in your profession out of work? I think that’s why you might be getting the “tow the party line” attitude from some. My wife never prompted me to write what I did, let alone know that I was even going to. I’m not defending her; I am trying to express the logical sense of what is; not what could be. If you have a plan, maybe I missed it here on your site? Are YOU offering ANY buyer a certain fee or % of the transaction? It is YOUR business or rather what your broker will permit you to charge. Unless you want to take your 1.5% and cut your own income based upon the quickness of a transaction. That is your business, but, I would ask you…how much do you figure your time is worth an hour? Is that what YOU would charge the client on that $900,000 home? Are you going to provide all the same necessary “behind the scene” services for this buyer as you would for the 2nd one?
What about the cost for you to go to real estate school, licensing, board member dues, E & O insurance, your own life and health insurance? Costs to run and create a space in YOUR home that qualifies for the proper IRS deductions? What about signage, key boxes, palms to for key boxes, etc..etc. What do YOU think that cost should be for a transaction, please justify it as well? Otherwise, you may be, not to me, coming off as trying to change something you may not truly understand the significance of. What about all the MLS systems out there…who is going to pay for the database? Who is going keep feeding it with new listings? I would think you might be pushing the industry back many generations where only an agent that lists a property is the one that can and will sell it. Also, it might push it back to a territorial thing…I don’t think you would want that.
I will close with an example. I’ve been in the Information Technology field since or even before it was called that. I have seen/been an independent contractor. (which are what you really are) Been and seen mistreatment by corporate managers, but got paid more than an employee doing the same job. Then ‘some’ stupid contractors complained. Well then the corp. executives jumped in and said..you want a job or not? Then the dot com crash occurred and the whole industry took a major re-look. Coming out the other side of the crash you have a whole new work environment. Contractors are being paid, on the avg., about 40-50% less than before, and are treated as the ultimate outcast by management. While the employees are wondering why you’re so depressed. (Enough on this, not a vent, an example) Is this what you are trying to do? Or will you allow the evolution of your profession generate its own efficiencies that will allow/support discounting their service?
Gary, try to answer this one question. Do you think a buyer who looks at one property for $2,000,000 and buys it cash in three weeks should pay the Buyer’s Agent $60,000?
We ARE, collectively, the evlolution of the profession generating the efficiencies. We do not simply sit back and wait for someone else to do it, and then follow along like lemmings…I am it; we are it. Now where do we go from here?
The answer lies in the fact that no one should ever pay a buyer’s agent $75,000 to assist them in the purchase of a home, just because the sale price of the home is over $2,000,000. That can’t be the answer that includes the consumer’s persepective. The answer has to be win-win for both the consumer and the real estate industry. Or at least that’s what I’m trying to get my brain around.
As I’ve said before in other forums regarding the DOJ and Redfin and Zillow. If we don’t come up with the right answer, and just keep our finger in the hole in the dike, someone, lots of someones, will come up with the wrong answers. We know best how to implement this type of change. So let’s change.
Marlow, You mention that the liability is $5,000 per side, given the E&O deductible. But then doesn’t that reduce to $1,000 per, if you have 5 sales and one has a problem? Does it not further reduce to $500 per, if you have ten sales and one has a problem>
In 15 plus years I have had about 5 that could have been problems. All were resolved because I attended the home inspection. Half were about water intrusion. Often an inspector says things about water instrustion that he does not put in the report. My having heard what he said by being there, resolved all of the issues.
I think agents who do not go to inspections and simply rely on the written report, or who sit in another room doing work and waiting for the summary, or who just show up for the summary, lose the ability to be part of the solution to problems.
to ross: re comment 4 at (e)
Redfin has clearly NOT fulfilled it’s duty to continuously use its efforts to show the buyer more houses because it is ALWAYS PRIOR to contract that redfin is engaged—remember, Redfin submits the offer & negotiates. I would also argue that its negotiation is on its face a breach of duty (negligence) to the buyer since you cannot effectively negotiate in the buyer’s best interest if you haven’t seen the house you are negotiating price on. And i think it may be against public policy to disclaim your fiduciary duty. Redfin guilty!
3 Cents
As I said in my post, the obligation to find properties for the buyer can be waived by the Buyer. I presume this is happening at Redfin and if so, there is is no problem under Agency Law. I disagree that their “negotiation” is a breach of some duty. As a real estate lawyer, I routinely negotiate on behalf of my clients without ever seeing the property that is the subject of negotiations. That is true of most lawyers. I don’t believe that I am engaged in negligence when I do this so why is Redfin? Lastly, there are no “fiduciary duties” under Washington law, just statutory agency duties. While most of these cannot be disclaimed, there is nothing that I see from the outside that requires Redfin to disclaim (except (e) which we already discussed)
Russ
Russ,
How do you suppose Redfin takes that money, financed in the mortgage and shown on the seller’s side of the HUD 1 , and “give” it to the buyer? If the buyer tries to use it to pay his downpayment, for instance, doesn’t the lender normally prohibit using financed amounts to pay the downpayment?
Does it get passed “under the table” off the sheet? Is it a gift from the Buyer’s Agent to the Buyer after first being paid from the seller to the Buyer Agent? If the seller is already paying the closing costs in the contract, how does that extra 2% change hands?
Seems to me the legalities are more about passing around financed monies, rather than the agency issues.
Ardell
I don’t know how Redfin gets the rebate money to the buyer so I don’t want to voice my opinion on the legality. It would be interesting to know. I do know, however, that under Washington license law. it is generally impremissible for a broker to pay any portion of the commission to an unlicensed person. However, the DOL has long felt that sharing the commission with principles in the transaction is not in violation of this rule and is basically the same as a reduction in fee. So, the basic notion of a selling broker rebating their fee to the buyer is ok, at least under license law.
Russ
I agree, Russ. It’s lender fraud that becomes the question of the day. Especially if the sale is 100% financed with the closing costs folded in or stacked on top of the price, and the rebate is off the sheet.
Dustin asked Redfin to comment on some of the Redfin-related questions on this blog, but I see that they appear to have been adequately answered here by Russ Cofano and others. Experienced real estate professionals and buyers both seem to understand the niche focus that Redfin Direct and Redfin Connect programs offer and aren’t so quick to condemn. Thank you. If there’s something quixotic remaining- ask away. We’ll do our best to address your questions and concerns. Marcus Smith, Broker
Hi Marcus,
Just one question. Does the Redfin agent go to the Home Inspection? How does the buyer get in and who stays with them during the inspection?
I think we pretty much get the rest of it. Do they pay for that separately and pay for someone to go to escrow to sign with them, like a fee for service menu?
A friend of mine owned “Real Estate a la Carte”! back in the mid 90s. Sounds like a similar concept.
Good luck, BTW! Just because we talk about you doesn’t mean we don’t wish you well 🙂
WTR to inspections – We do indeed go to inspections – open door, stay during inspections, etc. we even bring soda and coffee, leave a nice note to the listing agent and home seller. Under the Redfin Direct program, from offer receipt on, Redfin provides 110% full service – negotiation, satisfaction of all contingencies including inspection, and first class service and attention to detail until the buyer has moved in. Among other things the Redfin Direct program is provided by salaried (not commissioned )agents who, by design, focus on the closing part of the process and aren’t distracted by the all-too-common inclination to short this important phase to go after that next prospect. As you may surmise, we have detailed systems and accountability in place to best assure 100% customer satisfaction. Thanks again for your interest and kind thoughts.
Marcus
Thank you, Marcus.
Redfin, IMNSHO, does indeed have one of the best programs out there addressing the future of the real estate industry. At least conceptually.
Redfin and Zip Realty are the only two touching on the real heart of the issue.
My good wishes are 200% sincere. You deserve Kudos for having the Chutzpah to be a pioneer of change in a real positive direction for the consumer. One of the few…one of the two…IMNSHO.
to russ re comment 27 re: waiver
An analogy:
Buyer approaches Redfin and says i want that house. redfin never sees it. Redfin negotiates price, lowers the fee and has buyer sign a waiver. Turns out house has half the roof missing (buyer never looked up) or comparable house right next store selling for much lower price (buyer nearsighted and missed the for sale sign). You say the waiver covers broker. I disagree.
Buyer comes to RC, Esq. and says i want to sign this sales contract. Lawyer doesn’t look at it and charges buyer half his usual rate and has client sign a waiver. Contract contains clause highly detrimental to buyer and one atty would never let pass w/o due warning to client (eg Time of the essence). Do you believe a waiver covers the lawyer? I think you would say no.
Why is the client protected from the lawyer’s actions but not the buyer?
The issue should be one of “public policy” which protects the public from professionals who want to take short cuts and cover their butt with a waiver. If professionals entice clients to waive their rights in exchange for a lower fee, I think you set a terrible precedent. Frankly, i would want a lawyer who is an advocate for consumer rights not one who sees “waiver” and says “you lose”
Redfin model does not work in the long term, reason is simple. Most builders pay 3.0/1.5 commission to buyers agent, but they only pay 1.0/0.5 if the buyers agent does not accompany the buyer on their first visit. Same thing will happen to resales. Listing agents will get clever and add a registration policy.
I just prepared my quarterly report for reported closed sales for the first 3 months of 2006 of 4 real estate firms located in Downtown Seattle, from NWMLS statistics:
Coldwell Banker Bain: 50 single family homes and 26 condos = 76 sales
Windermere: 32 single family homes and 31 condos = 63 sales
J. L. Scott: 24 single family homes and 20 condos = 44 sales
Redfin: 1 single family home = 1 sale
Three Cents
Sorry for not replying sooner to your post…must have missed it.
I disagree with the analogy. If buyer client comes to me to review a contract, the essence of the representation IS the contract and it would make no sense for me to charge him anything if I did not read what it said. In other words, no contract review, no advice, no representation.
Here is a better analogy:
Buyer comes to me and asks that I review the contract which I do. Part of my review includes explaning what title insurance means. I also tell buyer that I can review the preliminary title commitment and exception documents so that buyer understands what matters he might object to or take title subject to. I then tell buyer it will cost him another $500-$1000 for me to do this. Buyer says no and agrees to read the commitment himself and will let me know if he has any questions. I send buyer communication that I will not read the commitment and that Buyer is on his own. Buyer reads the commitment and misses the fact that an old conveyance included a restrictive view covenant. Buyer closes the purchase and wants to build his three story dream home but cannot because of the covenant. My fault? No way. Disclaimer works. Yes way. Should there be a public policy that mandates that I review the title commitment when the buyer does not want to pay for it. No! Buyer got what buyer deserved and hopefully next time won’t make that mistake.
I believe the market will work quite well and that consumers need choices, not mandates. Those that want the best service will pay for it. Others don’t want it nor are they willing to pay for it and shouldn’t be forced into a cost structure that includes the higher level of service.
-Russ
The market (the clients) decide which business models will survive. The Redfin model is not for everyone, in fact it is not for most people, but it is for some. Some people want that model and for those people Redfin will be the perfect fit. There is plenty of business out there for many different models to be successful, just like there are many different types of people (diferent strokes for diferent folks)…
I don’t inject my own Botox, cut my own hair, prepare my own taxes, polish my own toenails, wash my own windows, fill my own cavities or detail my own car.
I hire professionals and quite frankly I want the best. Yes, I know my trusted agent makes a very comfortable living but she has made my life easier; she’s earned it. You get what you pay for. Overused expression? Certainly. True? Absolutely.
LOL! Something tells me you don’t live in the Seattle Area 🙂
Close enough. Eastside.
Cindy,
Off topic, but I just found out that the audience could be 900 people at Inman.
Can you tell me something about Botox? What’s it for? Will it make me look 4 years younger? I only need 4 years.
4 years? If you have vertical brow lines you’ll look 10 years younger. The best is Dr Egrari in Kirkland. http://www.egrari.com
No brow lines to speak of…I think it’s the olive oil and garlic. I thought botox was for the mouth area? I live in Kirkland, so I’ll check it out.
Isn’t botox supposed to give me Angelina Jolie lips?
Botox is out then-you don’t need it. Can’t remember what the lip stuff is but I’ve seen some bad jobs–be careful.
Cindy,
Think I’ll stay with what I’ve got for now. Otherwise I’d have to ditch my “1954 All Original Parts” jacket 🙂