When Ashwin and Poonam Jain began searching for a larger home for themselves and two children in San Ramon earlier this summer, they quickly realized they were spending hours scrutinizing homes online, evaluating school districts and comparing sales prices of nearby listings.
Though they’d both appreciated agents’ help in the past, they felt as experienced homebuyers that they didn’t need the same hand-holding this time. So why would they pay an agent tens of thousands of dollars to come in at the end and write up an offer?
“As a buyer, we are doing all the work,” Ashwin said. “Sometimes we struggled to see: Where is the value added from a broker?”
For years, homebuyers could largely ignore what their agents charged because their fee — traditionally around 2.5% — was covered by the seller. Nationally, real estate commissions are an estimated $100 billion business. For a median-priced Bay Area home selling at $1.27 million, a fee of 2.5% would amount to $31,750.
But earlier this year, the National Association of Realtors, responding to a lawsuit, changed its guidelines for commissions to settle claims from dozens of home sellers who said the rules cornered them into paying both their agent and the buyer’s.
Now, buyers can’t count on sellers to pay their agents’ fees, too. Since the real estate group’s new rules debuted in August, buyers have had to sign agreements with their agents promising to pay a certain commission if the seller doesn’t offer one. Many sellers are sticking with tradition and still offering buyers’ agents a 2.5% commission — but faced with the possibility of paying themselves, homebuyers like the Jains are questioning whether an agent is worth it.
The Jains started to look into alternatives. One Oakland company, TurboHome, promised to use artificial intelligence tools to help them review disclosures on a home and compare nearby property sales. When the time came to make an offer, a TurboHome agent, a real human being, would be there to help with negotiations and closing.
The fee? If the seller offered a commission to a buyer’s agent, TurboHome would take $10,000. Anything beyond that, the Jains would keep. If the seller didn’t offer commission, the Jains would pay the fee out of pocket.
After connecting with TurboHome’s agent, the Jains put in an offer on a five-bedroom, four-bath house in San Ramon listed at $2.75 million. Based on what recent homes had sold for, they bid under asking, at $2.65 million. A traditional agent would have taken $68,750 as a fee, but with TurboHome, the Jains would get a $58,750 credit back — money they could use to up the offer if the sellers countered or put toward a down payment if they won.
Ultimately, though, the home got two offers over $3 million. The sellers asked if the Jains wanted to increase their offer, but it was more than they were willing to pay.
Even though they lost the home, the Jains feel good about the experience — Ashwin and Poonam aren’t in a rush, and they knew how much they were willing to spend. TurboHome never put pressure on them to offer more, Ashwin said.
“Agents always have reasons to put in an offer over asking … to inflate a number and encourage a would-be buyer,” Jain said. “But it’s also in their interest to see the transaction go through.”
That’s a flaw in the traditional relationship between agents and buyers that TurboHome seeks to address, said Ben Bear, co-founder of real estate startup BuildCasa, which operates TurboHome.
“Our only incentive is to win the house, because we don’t make more when the buyer pays more,” Bear said.
TurboHome is far from the only service attempting to disrupt the homebuying process. San Francisco startup Modern Realty is also building a homebuying tool that can answer many of homebuyers’ simple questions with an artificial intelligence chatbot, then connect them with a human realtor to submit an offer. And since 2006, San Jose-based ShopProp has offered a a flat-fee model — starting at $4,995 for buyers and going up to $7,995 for extra tours and offers.
Chris Robell, a retired tech executive, used ShopProp last year to both sell his home in Palo Alto for $2.56 million and buy a new one in Redwood City for around the same price, paying total fees of around $10,000. He estimates that he saved $120,000 in agent commissions.
“It’s a high commission structure in the prevailing industry,” Robell said. “It’s well worth it to pay something, but $100,000 for a home is ridiculous.”
With its supercharged housing prices, the Bay Area is fertile ground for low-fee brokerages to sprout.
The National Association of Realtors is quick to point out that real estate agents’ fees have always been negotiable. Many buyers — especially first-time buyers — say they appreciate having an agent guide them through the process. But the settlement has given many buyers a newfound awareness of just what that guidance costs and that there are lower-cost options.
But the homebuying industry is a difficult one to disrupt, with many of its practices dictated by the National Association of Realtors and its affiliated state associations. It’s also an industry that relies heavily on networking — agents work hard to craft a reputation, and they like to do deals with other agents they trust.
For all their AI tools, both Modern Realty and TurboHome still rely on real estate agents. In part, that’s because buyers like knowing there’s a real person there to help them with closing. But it’s also because sellers’ agents want a human counterpart on the other end of a deal.
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“There’s a very strong inertia to keep things the way they are,” Modern Realty co-founder Raffi Isanians said. “There are a lot of people to keep happy if you’re in this space.”
Flat-fee companies have been able to offer unlimited access to agents and non-exclusivity as they start out, but there’s a question of whether they’ll be able to keep up as they scale, which their business models will eventually demand. While an agent making 2.5% commission may be able to get by closing just a few sales a year, flat-fee brokerages need much higher sales volumes to break even.
“For us, it isn’t just about the money,” said ShopProp’s co-owner Rob Luecke Jr. “We want to make home buying as inexpensive as possible. It’s really about changing the industry for the better.”