A couple of years ago, Chicago brothers Joe and Avi Fox had a disappointing experience in the office of a Los Angeles real estate agent when they went west to look for a vacation home.
“The guy tells us, `Here’s a Web site where you can search for homes,’ Joe Fox says. “`Drive around the neighborhood, see what you like, and when you find something I’ll help you with the transaction.’ My brother and I said, `Why should we do his work and then pay him a commission?'”
The Foxes weren’t the first buyers to begrudge an agent a commission–typically 3 percent of the purchase price–for work they felt they had done. But they were the first with the money, the track record and the idea that would do something about it.
The brothers, who two years before had sold their innovative Internet-based stock brokerage for a heap of money, saw real estate as the next business in which they’d like to mix it up.
“We never looked at a single home that weekend,” Joe Fox recalls. “We were too busy talking about our new business idea.”
With the proliferation of home-listing sites, home-value estimating sites and other Internet spaces, there’s ample information within easy reach of buyers, they found. To them, that meant that for a buyer with some Web know-how, a big chunk of the reason to rely on an agent is gone. In many cases, “the agent’s not finding houses for you to look at, he’s just driving you around to the ones you found,” Avi Fox says.
Then they learned from the National Association of Realtors that about 2.5 million buyers a year find a home on their own but enlist an agent for help with the transaction. (Another 4.1 million find their own houses and do the deal without an agent.)
“That’s more than $11 billion in commissions going to agents who haven’t done very much,” Joe Fox says. They studied up and found that rebating a share of the commission to the buyer is legal in Illinois and several other states.
That’s when they called a buddy who’d been involved in their first start-up and told him, in the words of Jake and Elwood, another pair of Chicago brothers, “We’re getting the band back together.”
In April 2006, they opened BuySide Realty in a top-floor suite at Illinois Center. Their aim–and their marketing gambit–is to put commission money back in the hands of those “self-directed” buyers who feel confident house-hunting on their own.
A home shopper does all the hunting but has on-the-phone help from an office-bound BuySide agent on devising and submitting an offer, and on the other financial and paperwork details.
BuySide agents or customer service representatives are available by phone 24 hours a day. A buyer is assigned to an agent, but when that person isn’t available, another agent or customer service person can access the buyer’s file.
After closing, BuySide collects the 3 percent commission that goes to the buyer’s agent, cuts a check for three-quarters of that to the buyer and keeps the remainder. By the end of 2006, BuySide had tallied 600 offers on homes in Illinois, California, Florida, Georgia and Virginia. (The company does not disclose how many resulted in closings.)
The rebate sounds good, says agent Tom Leko, but it may come at the expense of the market smarts you gain by relying on an agent.
“Yeah, there’s a lot of real estate information you can work with from the Web, but it’s not always accurate and up-to-date,” says Leko, of Coldwell Banker in Lakeview, who has worked mostly for buyers in his five years in the business. “I checked my house on Zillow, and it had a price that is $250,000 more than my place is worth. And I can tell you which buildings get hit with frequent special assessments, and that’s not something you can find on a Web site.”
On top of that, Leko says, despite some buyers’ experience with lethargic or inattentive agents, most agents snap to the job. “We know what’s on the market–we spend all day looking at it–so you tell me what you’re looking for and what your price range is, and I can get you to a bunch of possibilities right away. You don’t have to waste your own time going around to open houses. I’ve been to all those buildings already.”
The president of the National Association of Realtors, Pat Vredevoogd Combs, is also skeptical. A Coldwell Banker vice president in Grand Rapids, Mich., Combs says today’s buyer’s market might overwhelm the agent-less buyer with too many choices. “When you have only four or five houses to choose from, looking at them on the Internet is great,” Combs says. “But we’re in a market right now where you have many more to choose from, and it can be totally confusing.”
The brothers acknowledge that BuySide is not for everyone–and they emphasize that they’re not trying to put real estate agents out of business.
“There are certain buyers who will always need an agent,” says Joe Fox, the company’s 40-year-old CEO. “There are first-time buyers who don’t know the process, and there are people relocating to a new city.” His 42-year-old brother, BuySide’s chairman, adds: “And some people just want that experience of having somebody pick you up, drive you to the houses, walk you around and say, `Look at the nice tile in the bathroom.'”
BuySide is not aimed at those people–nor at people buying for less than $200,000. (That’s when BuySide’s slice of the commission dips to less than $1,500 and becomes unprofitable for the company, Joe Fox says.) BuySide is designed for the buyer who feels confident about picking a house and making an offer with minimal help.
The prospect of getting most of the buyer’s agent commission rebated appealed to Melissa Boyle when she discovered BuySide last summer, but what spurred her was irritation with an agent. She had specified that because she has two young boys, she and her husband needed an open floor plan “so I could keep my eyes on the boys from the kitchen.” But the agent showed her a string of houses that had formal living and dining rooms, exactly what she didn’t want.
“It seemed like a simple request to me, so I went online and did some searching,” Boyle says. “I found a lot of houses with the open living plan I wanted.” She also found some mentions of BuySide, and after checking it out the couple signed on.
Boyle says she didn’t mind going without an agent who might pick up on water damage, cracks or other details that escaped her notice. “I was going to bring in a good home inspector before buying anyway, so I felt protected,” she says.
Boyle found plenty of homes to visit. In each case, a BuySide customer service person contacted the seller’s agent about showing the house. Joe Fox says the selling agent is sometimes a little puzzled by this unusual approach, “but they hardly ever refuse. They want to sell the house.” A BuySide client arrives at a showing with a business card from the company printed off the computer at home. Boyle says most of the selling agents she met seemed intrigued with the concept, and nobody turned her away.
When she found a house, the four-bedroom Naperville home where the family now lives, Boyle made an offer through BuySide. The forms are on the Web site, and buyers can devise their own offer or consult with a customer service rep to make one. BuySide submits the offer, accepts counteroffers and sets up a “countdown to closing” clock on each client’s file.
A lot of what BuySide does is streamlining. By keeping its agents in the office, it focuses their attention on making an offer and closing a deal. By paying them a flat salary (plus bonuses based on customer feedback), it reduces the chance that an agent will rush one customer’s search and move on to the next one. And by putting the offer and closing documents online, it smooths the back-and-forth those processes involve. (How many agents look forward to traipsing across town to make an offer, then back to present the counter?)
The NAR’s Combs says making an offer without an agent is risky, in part because agents are schooled in what a place is worth because they’ve seen far more properties and far more deals than the typical buyer has.
On top of that, she says, a buyer’s agent is going to be a little more dispassionate. “I’ve seen people lose the home of their dreams over wanting to keep the refrigerator,” she says. “An agent is going to be able to stand back and say, `Look, two or three years from now are you really going to have a problem with the fact that you didn’t get to keep the used washer and dryer that were in the house?'” She says the human element an in-person agent provides should not be underestimated.
The Fox brothers don’t dispute that, but they hold onto the idea that for some buyers, their model is a better option.
Avi Fox notes that they have had just one client opt out of their program. “She was a first-time buyer, and this whole buying experience was scary to her,” he says. “She decided to go back and use a regular agent, and we thought that was a good idea for her.”
The brothers expect their market to grow fast. While in 1997, 2 percent of buyers found their home by searching on the Internet, Joe Fox says, 24 percent did in 2005.
“In a few years, you won’t see anybody calling Mary Smith at the Smith Real Estate Agency for help after they find the house,” Avi forecasts. His brother quickly adds that “as long as the other side, the sell side, is still using agents, there will always be real estate agents.” The company has a sell-side product rolling out soon, but details were not available.
The brothers had thought their primary market would be first-time buyers, who are typically stretching to pay for a home. They turned out to be right, but the surprise has been the appeal to move-up buyers. They expected most of the move-ups would be bargain-hunters.
The figures suggest something else is going on. Joe Fox says “we were projecting our upper end to be in the high $300,000s, but it’s into the $500,000s.” Buyers have used BuySide all the way into the $1.6 million area, they say, a level where the need to save isn’t as urgent.
Avi Fox theorizes that’s because the move-up buyer knows the ropes: “You saw the agent get a big, fat commission check for doing almost nothing, and you said, `Hey, I’m not going to let that happen again.'”
He’s been there. He bought two homes, first in Lincoln Park in the late 1990s and a few years later on the Gold Coast, and says he found both places on his own and went through the same agent. “That guy made some really easy money off me, twice.” His brother says the same thing about the Long Grove house he bought with his wife 10 years ago.
And about that vacation home? They bought one last year in Florida. They didn’t bother with an agent.
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From fresh chickens to fresh ideas
The BuySide brothers have been partners “ever since we shared bunk beds,” says Joe, the younger and more energetic one. Avi, more laid-back and with longer hair, finishes some of Joe’s sentences for him, and Joe returns the favor.
They were two of the three sons of a single mother who was an IRS agent and raised her kids in apartments in and near West Rogers Park.
In 1991, Avi was living in Florida and Joe in California when they decided to go into business in a deli Joe wanted to buy in Phoenix. They worked long hours but also traded stocks from their deli counter, using a hand-held quote machine.
“It was hard work, six days a week of bringing in crates of fresh chickens,” Joe recalls, “and my brother said, `If we worked this hard in the stock brokerage business we’d be wealthy.'”
The deli lasted less than a year, and both went to work in brokerages. In 1996, they launched an online brokerage reasoning that many investors were making their own trading decisions but still paying a commission. By cutting out the broker and fee, Web Street Securities became a hit as online trading surged. Web Street went public in 1999 and merged with E-Trade in 2001.
But “there was too much fire left in us,” Joe says, to play retired dot-com magnates. And as they found when they went shopping for a vacation home, there was another business where their formula would work.
–Dennis Rodkin
