Think Broker Fees Are Too High? New Firm Gives House Hunters a Rebate
Article from DNA Info By Amy Zimmer | July 12, 2017
MANHATTAN — Georges Benoliel does not consider himself a “real estate guy.”
But the banker believes he and his lawyer wife know enough about the market — having bought several investment properties in the city over the past few years — to create their own real estate technology and brokerage firm that takes aim at the fees real estate agents command.
When their company NestApple represents a buyer, instead of pocketing its half of the 5 or 6 percent commission from the seller, the firm turns the model on its head and guarantees a 2 percent rebate of the sales price to the buyer.
“We just want to destroy [the broker] model and reduce the fees that New Yorkers are paying,” said Benoliel, who closed three deals since launching three weeks ago, posting pictures online of happy clients posing with their rebate checks.
“We’re probably not going to make money the first or second year because of thin margins,” he acknowledged, noting the economics could work if the firm can boost its volume to about 500 deals a year. Benoliel is hopeful his strategy can shift the broker-fee model, which hasn’t budged in several decades, even though brokers are no longer gatekeepers of information.
There’s an explosion of tech-focused firms looking to gain a foothold in the city’s real estate market by reducing broker fees — whether it’s by offering rebates to house hunters like NestApple or by focusing on peer-to-peer networks to eliminate the need for a broker altogether. These include platforms like Joinery (which focuses on rentals), Flip (which targets sublets or lease breaks) or the forthcoming EasyKnock (which focuses on sales).
Many in the city’s brokerage community believe their services are needed — and worth the fees.
Neither Benoliel nor his wife are quitting their day jobs right now, and they don’t believe the type of broker service they offer requires the type of hand-holding that some buyers may want. Rather, they are aiming to work with clients like themselves, who are savvy about the market and spend time hunting for properties on search engines like StreetEasy, yet might need a “guiding hand” when it comes to pricing and negotiating.
Buyer rebates are not new. In fact, commission rebates are legal in 40 states, and they were endorsed by New York attorney general as a way to spur industry competition,Benoliel pointed out.
They are not common in the city, however.
Benoliel decided to pursue the idea after buying a $500,000 investment property without using a buyer’s broker. He felt sour about seeing the seller’s broker earn about $30,000 for what he believed was very little work.
“Maybe the service is worth something,” Benoliel said, “but the money they charge for the service they provide is too much.”
The Chelsea resident noted that in his native France, brokers earn about half the commission on sales than in New York. For rentals, landlords pay the fee, not the tenants.
NestApple is also handling rentals. For apartments where renters pay the standard fee of 15 percent of the annual rent, the listing agent would get 7.5 percent while NestApple would get the remaining 7.5 percent. The firm then would rebate 5 percent of the annual rent to the tenant, Benoliel said.
Even on no-fee apartments — where landlords pay brokers’ fees — NestApple would still give renters a rebate.
“The clients love us. The brokers hate us because we’re going to reduce the fees of the overall industry,” explained Benoliel, who doesn’t believe brokers should be left out of the equation altogether since it helps to have an intermediary.
The use of brokers has actually gone up over the past 14 years, said Mark Chin, of realty firm Keller Williams TriBeCa.
In 2003, 75 percent of house hunters used a broker, he said. Last year, 90 percent used one.
Chin believes that brokers provide services that are hard to find online, like help on compiling a board package or information on whether a building might soon rise nearby and block views.
“[Buyers] want from their agent a complex package of consultancy and negotiating,” he said. “You need someone on the ground who knows the industry. Unless they have done many transactions and are in the thick of it, they may think they know what they’re doing, but they do not. And a lot of times you’re dealing with people’s largest purchase or sale of their life. They don’t want someone doing it blind, and they do want someone holding their hand.”
On the other hand, “Death of a Real Estate Salesman” author Jarred Kessler believes that millennials — who now make up more than 50 percent of buyers nationally — don’t want to deal with a middleman.
That’s why his platform Easyknock, expected to launch in September and initially focus its marketing on Long Island, allows homeowners to name the price they’re willing to sell at and connect them directly with potential buyers.
It’s hard, however, to “disrupt the status quo” of the city’s real estate industry even when companies have hundreds of million in venture capital funding, said Zach Ehrlich, CEO of Mdrn. Residential.
“You have a lot of stakeholders holding onto that status quo,” he said.
“There aren’t other industries you could name where compensation hasn’t changed in decades,” he added. “I’m not saying the fees are too high or too low, but it shouldn’t be the exact same thing for the last 50 years.”
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