October 31, 2005
Priced to sell | A new Scarborough residential brokerage hopes lower commissions will draw more sellers
By Mike Woelflein
One look at BlueCurrent's weekly ad in the Portland Press Herald real estate section defines the difference between the new Scarborough brokerage and its peers. The biggest typeface in the ad isn't the company name or any of the listings. It's "4%," surrounded by the words, "the fair commission."
Discounting real estate commissions isn't new. Across Maine in the last five years or so, and nationally for a decade or more, a bevy of entrepreneurs have offered a variety of commission and fee structures for real estate transactions. The standard six percent commission has come under fire from a variety of discounters and fee-for-service providers, thanks in part to the power of the Internet in the industry.
Advertising the four percent commission prominently? That is new, it appears, in Maine. BlueCurrent is the brainchild of Sabine McElrath and Franz Honer, two former discount brokers who struck out on their own in July, hoping to shake up southern Maine real estate and build themselves a successful company.
"We're open about it," McElrath says of the sales commission. "It's always the elephant in the room and no one addresses it. We think it's a refreshing change, to have it out there, and people appreciate it. We feel it's a fair commission, and that we can offer full services at that rate."
One reason they believe that is the area's skyrocketing home prices, which they say means brokers make much more money for the same amount of work ˆ or even less, given the data now available to buyers and brokers over the Internet. According to the Maine Real Estate Information Service, from the fourth quarter of 1999 to the second quarter of 2005, the median home price in York County jumped 115% from $115,000 to $247,250. In Cumberland County, the leap was 91.7%, from $132,000 to $253,000.
McElrath and Honer believe their model is different in other ways, too. They're open with a valuable commodity in real estate: information. By posting more of it about the houses on their website (www.bluecurrenthomes.com), they hope to streamline the process for clients and brokers and attract savvy customers.
Other real estate brokers in the area seem unthreatened by the new firm. Sandra Murray's All Points Realtors office is just down Route 1 from BlueCurrent in Scarborough. Murray says that at least one local brokerage, in Old Orchard Beach, offers four percent commissions. "We've had discount brokerages in the area for some time and we haven't had any negative impact," Murray says. "It hasn't changed the way we do business. We believe in delivering full service to our clients and that continues to work for [our clients]."
Starting from scratch
Honer and McElrath met at Buyers & Sellers Realty, an Assist-2-Sell franchise in Falmouth. McElrath, 42, had moved to Maine in 1998. Until 1999, she was a management consultant, largely for CapGemini (now CapGemini Ernst and Young), working with Fortune 500 companies including Nissan. The travel wore her down, and she turned a hobby of buying and selling properties into a job at Assist-2-Sell in 2000. After three years there, she spent a year at a traditional brokerage, then another developing her own projects and managing construction for a developer.
Honer, 22, is something of a real estate prodigy. A Lubec native, he graduated from high school at 16 and moved to Portland. He worked as a technology advisor to Assist-2-Sell while studying computer science at the University of Southern Maine, then, at 18, became a licensed broker. After McElrath left Assist-2-Sell, they stayed in touch, and discussed a partnership.
But which business model to use? Traditional residential brokers typically charge a five percent to seven percent commission, usually splitting the amount with the buyer's broker. They list properties on the area's Multiple Listing Service, where other brokers can see the listing and details about the property, from the physical address to the owners' disclosures. They also post information on their own websites, in various publications and on realtor.com, the public version of the MLS, which offers less information. They take buyers and sellers from pre-qualifying right up to closing. Discount brokers, such as Reno, Nev.-based Assist-2-Sell, which has offices in Bangor, Dexter, Falmouth and Thomaston, claim to offer the same services, but for a lower commission or with a commission rebate. There are also fee-for-service brokers, offering a menu of services with set prices. Finally, there are for sale by owner sites, which offer listing services (including MLS) and other aids for a fee.
"We didn't like any of the business models out there," Honer says. "We saw the full-commission and limited-service models as flawed, and we toyed with the idea of buying a franchise and modifying it. But we had a variety of ideas that just didn't fit, so we decided to design our own business model."
The BlueCurrent model centers on information, and openly sharing it with potential customers. It begins with the website. Many sites offer the list price, some description of the home, exterior photos and sometimes interior photos. BlueCurrent always has all of that, plus the address (with the seller's permission), disclosure forms from owners, even deeds, floor plans, septic data and anything else Honer and McElrath can get their hands on and post.
"We don't want to be barriers to information," Honer says. "A lot of Realtors are. To get the address or other information, they require a buyer to call. It's like, 'Give me some information about you, and I'll tell you a little bit more.' The big game is to capture people, and we don't think there's any advantage for the client in that. We want to be more consultants than salespeople. We think people will appreciate that."
One reason BlueCurent posts all that information online is to save clients and brokers time. By requiring buyers to be pre-approved, insisting that buyers drive by a property before scheduling a showing and filling in prospective clients on whatever they can before the search begins, McElrath and Honer hope to increase efficiency for all concerned. "I don't care how beautiful the kitchen is, if there's a junkyard next to it, people won't want to buy it," McElrath says. "That's the management consultant in me, trying to get people prepared before we really get started."
Running the numbers
As of mid-October, BlueCurrent had only six listings. McElrath and Honer opened their 1,500-square foot office in July, got their licensing in order in August and started really marketing in September, through ads in the Press Herald and other papers. "It's been slower than I would like, but the word's getting out there," McElrath says.
They have at least one fan. Rachel Haigis bought her first home, a Westbrook condominium, in early October, after working with McElrath. Haigis, a 23-year-old actuarial assistant, originally worked with another broker, but didn't find the services to be helpful. The agent told her the commission would be six percent, she says, after she asked, but she became frustrated and started to search on her own. Haigis found a BlueCurrent listing on realtor.com, called the office and soon met McElrath for lunch.
"With the other broker, there was a lack of information, and even the information I got wasn't explained to me well," Haigis says. "It was overwhelming. I didn't know about [mortgage] points and commissions, how they work and how they're paid, who pays them. The first day, Sabine talked about all of that."
How much money BlueCurrent saved Haigis isn't clear, since the seller typically pays the commission; whether a lower commission results in a lower selling price for a particular house is up to the seller and his or her broker. The six percent commission on a $200,000 house would be $12,000, compared to $8,000 at four percent. But few in the real estate industry admit that the typical commission is six percent. "There's no such thing as a typical commission," says Walter Molony, a spokesman for the Chicago-based National Association of Realtors. "It's negotiable, always, and tends to fall within ranges depending on market conditions and competitive business pressure. Usually, there are higher commissions in lower-cost areas, and lower in higher-cost areas."
At Portland-based Re/Max by the Bay, Maine's largest-volume real estate office, broker David Banks says that commissions typically range from five percent to seven percent, depending on the value of the home, market conditions and the marketing plan. Each agent sets his or her own commission rates. "It's up to the individual, and it can change, based on a lot of factors," Banks says.
REAL Trends, a Littleton, Colo.-based research firm, placed the average commission nationally at 5.06%, and at 5.14% for New England. The survey has found that commission rates are falling in recent years, at least partly due to the influence of discount brokers.
Discount brokers are not the enemies of traditional Realtors, according to NAR ˆ which counts McElrath and Honer among its 1.2 million members ˆ and Banks. Houses sold by owners, known as FSBOs, can be a threat, but Molony notes discount brokers can be invaluable to potential FSBO sellers "who need some level of help, or don't have time to sell their home on their own."
NAR doesn't track the number of discount brokerages, Molony says. "Discount brokerages have been around a long time, and the trend is very stable for more than a decade in metropolitan areas. Usually, one or two offices will focus on discount services." The Wall Street Journal recently pegged the number of discount brokers at two percent, which is "consistent with our anecdotal sense," Molony says.
Still, there is legal wrangling on a national scale between traditional Realtors and discounters. The fee-based model, under which some brokers charge as little as $500 to list a house, seems to be the target of real estate trade groups. Six states have passed legislation requiring a minimum level of service from real estate agents, and the Department of Justice's anti-trust division is suing the NAR over a 2003 policy that allows brokers to selectively block access to their MLS listings, citing restricted competition. NAR responded by changing the policy, arguing that it's trying to protect consumers.
All that and a Mini Cooper
Discounters with models similar to BlueCurrent have been successful in some markets. Emeryville, Calif.-based ZipRealty now has more than 1,200 agents in 14 metropolitan markets. The company typically charges one percent less than the "going rate" in an area, or a minimum listing fee of $2,000. Founded in 1999, ZipRealty sold more than $3 billion of real estate in 2004.
New Jersey-based Foxton's is another success story. The firm, an offshoot of a U.K.-based company, offers three percent commissions, with sales associates receiving a salary, benefits and a company-provided Mini Cooper. (Calls to ZipRealty and Foxton's were not returned.)
In the long term, Honer and McElrath hope to follow the Foxton's model, even down to the distinctive vehicles for salespeople. They want to add office staff positions within the next year, and eventually hope to hire agents, with a salary, benefits and a commission structure. They'd like to build a network of 20 or so local area specialists, so someone who knows Westbrook well will handle that town, and so on.
They'd even like to become a franchisor, if the model works. They chose the company name with the help of a branding expert, seeking something fresh and non-geographical that could, one day, be used all across the country. "First, with names like Sabine and Franz, we didn't want to put those on the marquee," McElrath says with a laugh. Then she turns serious: "Eventually, we'd like to build out a second-tier market Foxton's, if you will. We think this idea can go a long way, and we're not going to limit ourselves right from the start."
Discounting real estate commissions isn't new. Across Maine in the last five years or so, and nationally for a decade or more, a bevy of entrepreneurs have offered a variety of commission and fee structures for real estate transactions. The standard six percent commission has come under fire from a variety of discounters and fee-for-service providers, thanks in part to the power of the Internet in the industry.
Advertising the four percent commission prominently? That is new, it appears, in Maine. BlueCurrent is the brainchild of Sabine McElrath and Franz Honer, two former discount brokers who struck out on their own in July, hoping to shake up southern Maine real estate and build themselves a successful company.
"We're open about it," McElrath says of the sales commission. "It's always the elephant in the room and no one addresses it. We think it's a refreshing change, to have it out there, and people appreciate it. We feel it's a fair commission, and that we can offer full services at that rate."
One reason they believe that is the area's skyrocketing home prices, which they say means brokers make much more money for the same amount of work ˆ or even less, given the data now available to buyers and brokers over the Internet. According to the Maine Real Estate Information Service, from the fourth quarter of 1999 to the second quarter of 2005, the median home price in York County jumped 115% from $115,000 to $247,250. In Cumberland County, the leap was 91.7%, from $132,000 to $253,000.
McElrath and Honer believe their model is different in other ways, too. They're open with a valuable commodity in real estate: information. By posting more of it about the houses on their website (www.bluecurrenthomes.com), they hope to streamline the process for clients and brokers and attract savvy customers.
Other real estate brokers in the area seem unthreatened by the new firm. Sandra Murray's All Points Realtors office is just down Route 1 from BlueCurrent in Scarborough. Murray says that at least one local brokerage, in Old Orchard Beach, offers four percent commissions. "We've had discount brokerages in the area for some time and we haven't had any negative impact," Murray says. "It hasn't changed the way we do business. We believe in delivering full service to our clients and that continues to work for [our clients]."
Starting from scratch
Honer and McElrath met at Buyers & Sellers Realty, an Assist-2-Sell franchise in Falmouth. McElrath, 42, had moved to Maine in 1998. Until 1999, she was a management consultant, largely for CapGemini (now CapGemini Ernst and Young), working with Fortune 500 companies including Nissan. The travel wore her down, and she turned a hobby of buying and selling properties into a job at Assist-2-Sell in 2000. After three years there, she spent a year at a traditional brokerage, then another developing her own projects and managing construction for a developer.
Honer, 22, is something of a real estate prodigy. A Lubec native, he graduated from high school at 16 and moved to Portland. He worked as a technology advisor to Assist-2-Sell while studying computer science at the University of Southern Maine, then, at 18, became a licensed broker. After McElrath left Assist-2-Sell, they stayed in touch, and discussed a partnership.
But which business model to use? Traditional residential brokers typically charge a five percent to seven percent commission, usually splitting the amount with the buyer's broker. They list properties on the area's Multiple Listing Service, where other brokers can see the listing and details about the property, from the physical address to the owners' disclosures. They also post information on their own websites, in various publications and on realtor.com, the public version of the MLS, which offers less information. They take buyers and sellers from pre-qualifying right up to closing. Discount brokers, such as Reno, Nev.-based Assist-2-Sell, which has offices in Bangor, Dexter, Falmouth and Thomaston, claim to offer the same services, but for a lower commission or with a commission rebate. There are also fee-for-service brokers, offering a menu of services with set prices. Finally, there are for sale by owner sites, which offer listing services (including MLS) and other aids for a fee.
"We didn't like any of the business models out there," Honer says. "We saw the full-commission and limited-service models as flawed, and we toyed with the idea of buying a franchise and modifying it. But we had a variety of ideas that just didn't fit, so we decided to design our own business model."
The BlueCurrent model centers on information, and openly sharing it with potential customers. It begins with the website. Many sites offer the list price, some description of the home, exterior photos and sometimes interior photos. BlueCurrent always has all of that, plus the address (with the seller's permission), disclosure forms from owners, even deeds, floor plans, septic data and anything else Honer and McElrath can get their hands on and post.
"We don't want to be barriers to information," Honer says. "A lot of Realtors are. To get the address or other information, they require a buyer to call. It's like, 'Give me some information about you, and I'll tell you a little bit more.' The big game is to capture people, and we don't think there's any advantage for the client in that. We want to be more consultants than salespeople. We think people will appreciate that."
One reason BlueCurent posts all that information online is to save clients and brokers time. By requiring buyers to be pre-approved, insisting that buyers drive by a property before scheduling a showing and filling in prospective clients on whatever they can before the search begins, McElrath and Honer hope to increase efficiency for all concerned. "I don't care how beautiful the kitchen is, if there's a junkyard next to it, people won't want to buy it," McElrath says. "That's the management consultant in me, trying to get people prepared before we really get started."
Running the numbers
As of mid-October, BlueCurrent had only six listings. McElrath and Honer opened their 1,500-square foot office in July, got their licensing in order in August and started really marketing in September, through ads in the Press Herald and other papers. "It's been slower than I would like, but the word's getting out there," McElrath says.
They have at least one fan. Rachel Haigis bought her first home, a Westbrook condominium, in early October, after working with McElrath. Haigis, a 23-year-old actuarial assistant, originally worked with another broker, but didn't find the services to be helpful. The agent told her the commission would be six percent, she says, after she asked, but she became frustrated and started to search on her own. Haigis found a BlueCurrent listing on realtor.com, called the office and soon met McElrath for lunch.
"With the other broker, there was a lack of information, and even the information I got wasn't explained to me well," Haigis says. "It was overwhelming. I didn't know about [mortgage] points and commissions, how they work and how they're paid, who pays them. The first day, Sabine talked about all of that."
How much money BlueCurrent saved Haigis isn't clear, since the seller typically pays the commission; whether a lower commission results in a lower selling price for a particular house is up to the seller and his or her broker. The six percent commission on a $200,000 house would be $12,000, compared to $8,000 at four percent. But few in the real estate industry admit that the typical commission is six percent. "There's no such thing as a typical commission," says Walter Molony, a spokesman for the Chicago-based National Association of Realtors. "It's negotiable, always, and tends to fall within ranges depending on market conditions and competitive business pressure. Usually, there are higher commissions in lower-cost areas, and lower in higher-cost areas."
At Portland-based Re/Max by the Bay, Maine's largest-volume real estate office, broker David Banks says that commissions typically range from five percent to seven percent, depending on the value of the home, market conditions and the marketing plan. Each agent sets his or her own commission rates. "It's up to the individual, and it can change, based on a lot of factors," Banks says.
REAL Trends, a Littleton, Colo.-based research firm, placed the average commission nationally at 5.06%, and at 5.14% for New England. The survey has found that commission rates are falling in recent years, at least partly due to the influence of discount brokers.
Discount brokers are not the enemies of traditional Realtors, according to NAR ˆ which counts McElrath and Honer among its 1.2 million members ˆ and Banks. Houses sold by owners, known as FSBOs, can be a threat, but Molony notes discount brokers can be invaluable to potential FSBO sellers "who need some level of help, or don't have time to sell their home on their own."
NAR doesn't track the number of discount brokerages, Molony says. "Discount brokerages have been around a long time, and the trend is very stable for more than a decade in metropolitan areas. Usually, one or two offices will focus on discount services." The Wall Street Journal recently pegged the number of discount brokers at two percent, which is "consistent with our anecdotal sense," Molony says.
Still, there is legal wrangling on a national scale between traditional Realtors and discounters. The fee-based model, under which some brokers charge as little as $500 to list a house, seems to be the target of real estate trade groups. Six states have passed legislation requiring a minimum level of service from real estate agents, and the Department of Justice's anti-trust division is suing the NAR over a 2003 policy that allows brokers to selectively block access to their MLS listings, citing restricted competition. NAR responded by changing the policy, arguing that it's trying to protect consumers.
All that and a Mini Cooper
Discounters with models similar to BlueCurrent have been successful in some markets. Emeryville, Calif.-based ZipRealty now has more than 1,200 agents in 14 metropolitan markets. The company typically charges one percent less than the "going rate" in an area, or a minimum listing fee of $2,000. Founded in 1999, ZipRealty sold more than $3 billion of real estate in 2004.
New Jersey-based Foxton's is another success story. The firm, an offshoot of a U.K.-based company, offers three percent commissions, with sales associates receiving a salary, benefits and a company-provided Mini Cooper. (Calls to ZipRealty and Foxton's were not returned.)
In the long term, Honer and McElrath hope to follow the Foxton's model, even down to the distinctive vehicles for salespeople. They want to add office staff positions within the next year, and eventually hope to hire agents, with a salary, benefits and a commission structure. They'd like to build a network of 20 or so local area specialists, so someone who knows Westbrook well will handle that town, and so on.
They'd even like to become a franchisor, if the model works. They chose the company name with the help of a branding expert, seeking something fresh and non-geographical that could, one day, be used all across the country. "First, with names like Sabine and Franz, we didn't want to put those on the marquee," McElrath says with a laugh. Then she turns serious: "Eventually, we'd like to build out a second-tier market Foxton's, if you will. We think this idea can go a long way, and we're not going to limit ourselves right from the start."
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