When David and Annette Wolf decided that their family was outgrowing its Seattle area home, they also decided that they did not need much help finding a new one.
They combed Internet listings of homes for sale until they spotted a four-bedroom house on a cul-de-sac with a three-car garage on 1 hectare.
But the seller's agent refused to show it to them. Why would she turn away an eager buyer? Not because of the Wolfs' race, creed or color. Instead, David Wolf, a software engineering manager at the online directory InfoSpace, said he and his wife were shunned once the agent learned they used an online broker called Redfin.
David Wolf said they turned to Redfin because it gives two-thirds of its sales commission (which is usually 3 percent of the sale price) to its customers.
"I didn't want to pay 3 percent for the opening of a door," he said. But customers like Wolf -- affluent and comfortable with the Internet -- are a frightening prospect for real estate agents who, as a group, reap at least US$60 billion a year in commission income.
Redfin and other innovators, including ZipRealty and BuySideInc.com, are using technology to reduce costs and to save time for their brokers. Agents don't find and recommend homes -- customers do that on their own, using Internet listings -- and that enables agents to charge less for the services they do provide, chiefly handling the paperwork and negotiations.
The Internet has radically changed the way consumers buy books and airline tickets, trade stock and learn news. But the real estate industry has resisted change -- and protected its commission structure -- by controlling the information on its Multiple Listing Service database of properties for sale.
"You can find out more on the Internet about an eBay Beanie Baby than you can about a US$1 million house," said Glenn Kelman, chief executive of Redfin, a licensed broker in Washington state and California.
The MLS is the only place that contains nearly all the homes for sale in a community. Only brokers can post there, but agents can also display selected information about a listing on their own Web sites and on Realtor.com, a site that works with the National Association of Realtors.
Traditional agents still firmly control the MLS, which allows all participating brokers, including Redfin, to view almost every home for sale in a particular area, even those being offered through competitors' agencies. But the typical 6 percent commission, paid out of the seller's proceeds and split between the seller's and buyer's agents, is under attack because, as economists note, it does not serve consumers well.
Economists who have studied the current system say that it also does little for most agents -- except for a few stars, whose impressive earnings give hope to the large majority of less-successful agents and thus encourage them to protect the status quo. Rivals on the Internet say they do this by refusing to cooperate with buyers using Web-based brokers and by denying MLS information to some online firms.
They have not, as yet, fought back by reducing their commissions. And Paul Goodrich, the managing director of the Madrona Venture Group in Seattle, an investor in Redfin, says he thinks that they are unlikely ever to do so.
"It will be hard for the real estate industry to change the way it compensates its agents," he said. "If Coldwell Banker announced it was paying 1 percent commission to its agents, there would be a mass exodus."
As it turned out, the Wolfs' offer was the highest of five bids made for the house they wanted, and they were able to buy it despite the balky broker. (They toured the house with a friend who is an agent.) They also received a US$16,300 commission rebate from Redfin and became firm believers in online real-estate brokers.
But as the couple's story shows, people who want to use Web-based brokers often have to fight to do so. Many are, and there are growing signs that they are succeeding.
BuySideInc.com, an online buyer's broker in Chicago that offers a 75 percent commission rebate, said that at one point 12 percent of its customers reported that traditional agents had refused to show houses to them.
The rate is now down to about 6 percent, perhaps because of responses like this: One client who was denied a showing made an offer anyway that was contingent on getting a tour -- a move intended to alert the seller to the refusing agent's actions.
"I'd like to have been the fly on the wall for the conversation between that seller and his agent," said Joseph Fox, chief executive of BuySide and a founder of one of the earliest online stock brokerage firms, WebStreet. "The amazing thing," he added, "is that the selling agent still got paid and made US$15,000 to US$20,000."
In many cities, real-estate agents have tried to restrict access to MLS information or to limit its use on the database. Some have asked state legislatures to pass laws forcing brokers to offer certain levels of service.
The US Justice Department and the Federal Trade Commission have fought these tactics in Texas, Kentucky, Tennessee and Oklahoma, among other states, and the department is suing the National Association of Realtors, the powerful trade group of agents and brokers, over what it calls anticompetitive rules.
Redfin opened in 2004 as an online real estate listings site for Seattle, and now has 35 employees, including 12 agents in Washington state and California. Its first innovation was to layer maps with historical prices for each area as well as information on property taxes and which homes had a view, for example.
In February, it introduced a Web site that automates the bidding process -- and the commission rebates. The sale of a US$500,000 house, for example, typically yields a 3 percent commission of US$15,000 for the buyer's agent. A Redfin customer would get US$10,000 back.
"At that point we became a true pariah to the industry," said Rob McGarty, Redfin's director of West Coast operations. Buying a home online is not too different from ordering a book at Amazon.com or a computer at Dell.com. A prospective buyer finds a house on the Redfin site, which populates its maps with homes found on the local MLS. A request to see the house can be made with the click of a mouse.
Buyers also enter details of their offers -- the price they want to pay, the size of the deposit they are willing to put up and, for example, whether they will pay for the termite inspection. Then they click on "Submit." A Redfin agent checks everything with the customer before passing along the offer to the seller.
"It took eight minutes," said Perry Webster of Des Moines, Washington, a suburb of Seattle, who bought a new four-bedroom house through Redfin. "But it didn't really matter that it was online. We just liked the business model." He asked, "Is it really worth US$10,000 to ride in a real estate agent's Lexus?"
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