Modelry - A Random Walk through Internet Real Estate: Zip Realty and Redfin: Did Zip Realty Fail? Why Did We All Worry About "Rebate Companies"?

Zip Realty and Redfin: Did Zip Realty Fail? Why Did We All Worry About "Rebate Companies"?

I don't if others saw the news today, but ZipRealty announed the end of buyer rebates.  I wonder if Redfin will follow suit.  It has been an incredibly hard real estate market.  As both companies strive to increase revenue and reduce costs, it seems like the employee agent and the homebuyer rebate are becoming things of the past.

Zip Realty and Redfin: Did Zip Realty Fail? Why Did We All Worry About "Rebate Companies"?

Zip Realty recently announced that they are going through significant restructuring. They are no longer using the Employee-Agent sales model and are going to a traditional Independent Contractor format. Although the company has not admitted failure, they have stated that they intend to put emphasis on the quality of their agents and their experience.

In the coming months, Zip Realty is closing offices in 11 markets nationwide from 35 to 24. That's almost a third of their current presence.

Interesting!

Recently we've seen discussions here on Active Rain and elsewhere about the threat Redfin might present to traditional Real Estate Agents and Brokerages...but hasn't Zip Realty just proved that discount real estate services don't work?

Simply by admitting that they need to emphasize the quality of their agents, Zip Realty is all but stating the discount/rebate real estate companies are seen as employing agents who are less qualified than the traditional agent. I'm not saying this is true.....but this is the impression they have given.

I have not found Redfin and Zip Realty to be a threat. They serve a market.....and maybe not a very large one.....which is not MY market. I don't want to service the discount client!  I provide full-service, quality service, professional service and I charge for my expertise. My clients appreciate that and that's why they work with me. But Redfin, Zip and Help-U-Sell and a variety of others have tried the discount/rebate sales model, it would appear that this might not be a long term strategy....maybe once the novelty wears off?

 

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Comment balloon 8 commentsNikesh Parekh • July 02 2011 12:55AM

Comments

Dear Niki -

It seemed to me that the ZIP model worked when there was volume and the agents could go for volume not high end.  I don't agree with Karen in all she says.  It may not be the concept that doesn't work but the execution.
Have a happy day -
Lynn

 

Posted by Lynn B. Friedman, Concierge Service for Our Atlanta Sellers & Buyers (Atlanta Homes ODAT Realty Call/Text 404-939-2727 Buckhead - Midtown - Westside -- and more ...) over 9 years ago

I have been in the business a long time it takes a lot to be successful in this business.  If the Redfin and Zip were going to be successful it would only be in a down market.  If they cannot make it here they cannot make it anywhere.

Posted by Tim Lorenz, 949 874-2247 (TIM LORENZ - Elite Home Sales Team) over 9 years ago

It just doesn't work.

A rebate is a very novel idea, but when you get right down to it, in a market that has alot of drama surrounding it, buyers and sellers gravitate towards someone who they TRUST. 

Someone local who has expertise is a classic that can't be discounted and has more value than a mere discount.

Posted by Ralph Gorgoglione, Hawaii and California Real Estate (310) 497-9407 (Maui Life Homes / Metro Life Homes) over 9 years ago

Niki,

This is not the first time this model has been tried.  It just does not work.  For all the work an agent has to do these days from hand holding to dealing with paperwork, governmental regulations, banks who dilly dally, and everything else that comes up in a deal, we have always felt that an excellent agent is worth every penny they make.  A

Posted by Ron and Alexandra Seigel, Luxury Real Estate Branding, Marketing & Strategy (Napa Consultants) over 9 years ago

Niki - Karen is confusing two (2) totally separate and distinct terms:

  1. Rebating, and
  2. Discount Brokerage Service Providers

These are completely unrelated and should neither be confused nor used interchangeably. Though Zip Realty rebated commissions (in states that permitted rebating - more on this later), it did offer consumers a full line of services. Karen is confusing the term discounting with rebating.

Rebating commissions is just that. An agent or firm elects to rebate a portion of the commission earned back to their client or principal. This has NO bearing on the level of service being rendered or provided. Ten (10) states forbid buyers' brokers from rebating a portion of the sales commission to the consumer. Visit the DOJ site for additional details.

Discount Brokerage Service Providers are a different matter altogether. This type of firm only provides partial or limited service. In many cases these companies accept a modest fee, usually under $500, to simply place a home in a local MLS. You might consider these as a MLS FSBO.

Some Discount Brokers may provide a yard sign or lock box, but in the majority of situations, what differentiates these fims is that they DO NOT REPRESENT the Seller. They typically do not handle any negotiations or render counsel or advice. The Seller is responsible for any dealings with the Buyer's Agent (if one exists), coordinating all showing appointments, handling any repair negotiations, and comprehending all Closing details and requirements.

Not all states permit Discount Brokerage. Eight (8) states require consumers to buy more services from sellers' brokers than they may want, with no option to waive the extra items. Visit the DOJ site for full details outlining the laws in place that define Discount, Limited Service, and Full Service Brokerage models.

Zip Realty never discounted their service, though they did rebate their commission(s) to clients or principals. Patty Anderson, a former Zip Realty Agent alluded to this fact, commenting on Karen's blog. Zip offered a full range of services. They were not a 'Discount Brokerage' though perhaps perceived as one and as Karen incorrectly seems to do. They were a full service brokerage that simply offered a rebate on earnings.

The Department of Justice differentiates discounting and rebating. When a firm represents the seller through the entire transaction, by legal definition they are not a discount broker. Karen quibbles over semantics sharing, "I always associate the word discount with the price you pay for something, not the service you get for it." Unfortunately, this is an area not open to interpretation.

As a Broker, Karen should realize that the mere mention that a price is being "discounted" is an Anti-Trust violation as doing so implies "reduction from an established price" ("price fixing"). Discounting is NEVER based on price; it IS based on service, be it reduced or limited in scope. And while there is generally a reduction in the amount a consumer pays for less-than-full-service, this is NOT considered by the Justice Department as discounting.

Zip was a rebater, not a discounter and assuming that this model failed due to its practice of rebating commissions may or may not be totally accurate. As an outsider, we shouldn't judge or make assumptions without being in possession of all the facts.

Take my situation, for instance: I'm licensed in Texas (Common Law) where I am allowed to rebate commissions although required to offer 'minimal services' and not permitted to operate as a "Discount" Broker. In Louisiana (Napoleonic Code) however, just the opposite is true: I cannot rebate any commission, yet I am permitted to operate under a discount model if I so chose (but prefer not to).

Confused? This is likely one of many reasons that the average consumer misunderstands our profession. Each state incorporates different laws and requires different provisions as to how properties are marketed and sold. This helps validate the importance of our profession and demonstrates the need for consumers to hire a real estate professional to assist with a purchase or sale.

Personally, I've never worried over what other firms do or don't do in my market. Competition is healthy. New business models have emerged that allow consumers to save money when they buy or sell a home. Let the consumer choose the level of service(s) desired and what they're willing to pay for those services.

Posted by Mike Mayer (Mike Mayer, Broker/Owner - i List For Less Realty, LLC) over 9 years ago

Thank you for the information, and also for the comments!.

Posted by EMILIA B COOPER, REALTOR® SFR.NCHSE.AHWD, Short Sales, Foreclosure & Bank Owned Real Estate (LAROSA REALTY) over 9 years ago

Hi Niki....thanks for the reblog. I had not heard that Zip stopped buyer rebates, one would think if they were going to work, they would work in this market, but people just want good service and don't seem to mind if they don't "get anything" in the process.

Posted by Karen Fiddler, Broker/Owner, Orange County & Lake Arrowhead, CA (949)510-2395 (Karen Parsons-Fiddler, Broker 949-510-2395) over 9 years ago
Any way you slice it, the HST is a major transfer of the tax base from inmcoe to consumption. This is a good thing, IMHO, because the tax is only applied when people consume things. So if you're a cheap ass like I am, then you end up paying less tax over all.The GST rebate will provide a rebate for HST for poor people, which means they'll end up paying zero HST effectively. The one exception would of course be people who are so poorly resourced that they can't file a tax return. Efforts to make sure these people file and get their credit would be a sound thing for any progressive elements to be pushing for.The gripes from new home owners about the HST are pure whinging. The housing market gets more government pork than any other sector (think about the enormous amount of government backed insurance that is provided by CMHC, without which home prices wouldn't be nearly as high). I for one am glad that HST is going to start recouping some of that ridiculous largess from a sector that is already far too distorted by government incentives.I also think that food should be HST taxable. Before the GST (and the GST exemption for groceries), restaurants and grocery stores shared about 50% of the food market each. Now restaurants have only 39% probably because people have to pay a tax to eat in a restaurant. I don't understand why there is this distortion. If HST is charged at restaurants, then it should be charged at the grocery store as well. The extra tax collected on groceries could fund food banks and other mechanisms to help the poor feed themselves, while restaurants would be back on fair ground providing the awesome economically sound service of providing prepared meals in an efficient way to a hungry public.
Posted by Steinz over 8 years ago

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