Residential brokerage is moving to a flat-fee model, and commercial brokerage may not be far behind. The UK-based residential realty firm Purplebricks is making its foray into the US market with an office in Los Angeles. The company works on a flat-fee, rather than commission-based, model, and has seen major success. It is the number one residential brokerage firm in the UK and expanded to Australia last year.
“Given the changing consumer behavior, the marketplace was thirsty for a model with both great service and value,” Eric Eckardt, CEO of Purplebricks, tells GlobeSt.com. “Today, we are now the number one real estate firm in the UK. The US has one of the highest commission rates for an industrialized nation. Right now, commission rates are anywhere fro 5% to 1 0%, despite the fact that home values have increased over the last decade. As a result, consumers have spent more than $70 billion per year in commissions. We thought that the US was the next logical step.”
The firm chose to launch in the Los Angeles market because the state of California has the highest transaction volume in the country with average sales prices that are twice the national average. Combine the high sales volume with Los Angeles' density, and it was an ideal market for the firm. “California also has a lot of high-density populated areas,” says Eckardt. “We really build the brand first, and we felt that, given our marketing and advertising dynamics, that we could reach a lot of consumers. There are more than 5.5 million households and 17 million people in the area where we launched, so it is a great way to launch a brand like Purplebricks and test our offerings in the marketplace.”
Eckardt estimates that the flat-fee approach will save tens of thousands of dollars in commission fees for California buyers every year. While it is obvious why buyers would favor the approach, brokers have also had a positive response to the platform. “Even though we charge a flat fee, we still offer our brokers a 2% to 3% on the buy side,” explains Eckardt. “So, if you are with a traditional brand, you could earn the same amount of money showing our listings as you could with a traditional brand.” In fact, the first three transactions completed in California were made by third-party agents.
While Purplebricks is focused on the residential market, Eckardt says there is a clear trend favoring flat-fees in brokerage. He says that it is a matter of time before the commercial industry adopts a similar model. “If you look at industry trends in general, specifically consumer buying trends and access to information, that is inevitably going to impact commercial real estate,” he says. “Look at what virtual technology is already doing by showing commercial properties that are going to be leased today. You can already see the disruption in the marketplace. That change will occur in the commercial space. A commercial broker is still going to play an integral role in the transaction, but in an advisory role.”
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Kelsi Maree Borland
