Saving on housing costs (part 2) – no more 6% fees?

Continuing yesterday’s entry… The Last Stand of the 6-Percenters – that’s the NY Times story that’s got home buyers excited and realtors needing to rethink their business model. The current system awards 3% to the seller’s agent, and 3% to the buyer’s agent. Louisville is pioneering a better model with its beta community.

“Traditional agents spend very little time brokering a deal. Most of their time is consumed looking for new clients, which is of no benefit to consumers,” states a Berkeley professor who studies real estate commissions. Referring to the current realtor-controlled system, “It’s a thousand tiny shackles on innovation,” says the chief executive of Redfin, an online realty service that offers 2/3 of the buyer agent’s fee (3%) back to the buyer, and replaces seller agents (3%) with a flat fee of $2000 to list in the MLS. In the book, Freakonomics, realtors are even compared to… well, let’s just say cults – more here. The Times article further states that realtors don’t even make that much given the amount of work and sacrifice (weekends) they put in.

Thus, enter the beta community model: No buyers agents. No listing agents. No fees. You get to participate in the development of your home and the building it’s in. The developer provides those savings to you, oftentimes as a 10% pre-sales discount. Marketing costs for developers are instead directed over to establishing the beta community, which also reduces risk and inventory – or as Dell likes to call it, having negative inventory and negative working capital.

Image: This is the phase (design and planning) where resident-driven attainable home buying should begin.

  • Jake Brown

    If buyers come armed with their choices/preferences and at least an idea of the cost associated with those choices, life would be much easier for the builder/developer. Unfortunately, a home is one of the largest, and sometimes the most frightening, purchases a person makes in their life. It makes it that much tougher when they come unarmed with no idea of what they truly want or how they can pay for it. That’s why I am a fan of the Beta Community. Bring me your thoughts, idea’s and budgets to the table in the planning stages and be willing to give and take to get the great end product.