Six percent has long been the typical commission shared by brokers representing a seller and a buyer of a home, even as that fee has grown to $39,000 for midpriced single-family houses on Oahu. This figure, however, could be in for a test.
On May 31 the owner of local real estate brokerage firm Shirokiya Residential Estates announced a venture backed by $50 million to pay agents a salary plus bonuses based on customer satisfaction while funneling the buyer agent’s 3 percent commission to the buyer.
Now a growing major player in the salary-based real estate brokerage business, Seattle-based Redfin, also has sights on entering Hawaii.
Redfin is trying to recruit a managing broker to establish a local office in Honolulu that would take the expanding company beyond the 22 states in which it currently operates.
"Redfin is coming to Hawaii," the firm said in an online job posting. "This is an opportunity to establish a market region from the ground up."
The company launched its unusual brokerage in 2006 based on paying agents a salary plus a bonus tied to customer ratings published online.
Redfin describes its business model as different from traditional brokerage firms because it aligns agent and customer interests.
"At Redfin, we’re doing something that has never been done before," the company states on its website. "Redfin has a team of experienced, full-service real estate agents who are advocates, not sales-people, earning customer-satisfaction bonuses, not commissions."
The company does collect commissions, though at a discounted rate.
As a seller’s agent Redfin typically charges 1.5 percent instead of 3 percent. As a buyer’s agent Redfin collects 3 percent, of which it typically passes a little over 0.5 percent to the buyer. That pass-on would amount to about $3,700 for someone buying a $650,000 home representing the median price on Oahu.
Leaders in Oahu’s home brokerage business said new discount brokerage operations like Redfin and the Shirokiya venture, dubbed SRE Matrix Inc., are typical during hot market cycles where low inventory and high buyer demand increase competition to broker sales. They question, however, whether such new entries will establish a lasting foothold or erode commission rates.
Home sale commissions in Hawaii are not set. They are subject to negotiation, though the prevailing rate is 6 percent paid by the seller and split evenly between the buyer’s agent and seller’s agent.
Takeshi Sekiguchi, a longtime Hawaii real estate developer from Japan who set up SRE Matrix, predicted that commissions will fall to 3 percent from 6 percent in two years.
"Within the next few years, the real estate industry in the United States will be revolutionized," he said in a news release. "We want to facilitate this evolution for homebuyers, helping them save their hard-earned money."
Scott Higashi, executive vice president of sales for Prudential Locations LLC, said discount brokers stirred up considerable interest during Hawaii’s last housing market boom in the mid-2000s but today are much less prevalent.
Higashi said the most important criterion customers should place on a real estate agent is quality.
Mike James, president of Coldwell Banker Pacific Properties, said history has shown that discount brokerage firms manage to capture relatively minor market share.
James, who is familiar with Redfin after previously working in San Francisco, where the discount brokerage firm expanded in 2006, said Redfin’s focus has largely become collecting referral fees from traditional brokers who get customers through the company’s website.
"That (salaried agent) model did not work very well," James said.
Redfin spokeswoman Rachel Musiker said the company employs more than 1,000 of its own agents.
In some markets, though, Redfin lists more "partner" agents from other firms on its website than its own agents.
Redfin launched its partner program in 2009, under which partner agents are listed on redfin.com and share 30 percent of their commission with Redfin in cases where customers select them from Redfin’s site. Redfin in turn shares half of its cut with the customer.
In the greater Sacramento, Calif., area, where Redfin established operations in 2009, redfin.com lists six Redfin agents and about 30 partner agents. In Phoenix, where Redfin expanded in 2010, the company lists eight agents and 18 partner agents. Redfin expanded to Las Vegas in April and has one agent and about 20 partner agents there.
The company said it is selective about who it hires — 1 out of every 25 agents interviewed — to ensure quality.
It can be challenging to persuade commission-based agents to join the company, though Redfin said it tailors its compensation to be competitive with or outperform top-selling competitors.
Agents in Hawaii earn higher commissions than in most other markets because of higher home prices, though Musiker said that hasn’t inhibited Redfin from operating in high-price markets including San Francisco, New York and Washington, D.C.
"We’re proud to attract the best of the best agents in those and our other markets, and we expect to hire the same caliber of agents in Honolulu," she said.