Another way to buy or sell that house
- Article by: KARA McGUIRE
- Star Tribune
- May 4, 2008 - 5:11 PM
If Rob Buntz had known that he would be launching a real estate venture in the midst of the worst housing market in a generation, he probably would have closed up shop before he'd even opened it. But his company, Webdigs.com, an online real estate brokerage that offers flat fees to sellers and rebates to home buyers, was already well underway.
And since its soft launch in October, business has "exploded," says Buntz, a real estate developer who founded the resort Bluefin Bay on Lake Superior. "It's turned out that the market is ideal for us, because people are really looking for ways to save money."
Webdigs.com just launched an extensive ad campaign, opened an office in Florida, is working on expanding to Hawaii, Colorado and Arizona, and hopes that it will be a publicly traded company sometime this summer.
Its critics say Webdigs.com is simply the latest flavor of the month that claims to do much of what a traditional brokerage would do, but for less. There are plenty of similar companies -- ZipRealty.com, Redfin.com, HelpUSell.com and Buysiderealty.com as well as a graveyard full -- that offer discounts and rebates for less service, all which have challenged the commissions that traditional real estate agents have gotten accustomed to.
One agent cool to the concept
"I think you get what you pay for," said Coldwell Banker Burnet agent John Adams, who thinks the company is a lot of "smoke and mirrors" and will be "here today, gone tomorrow."
ReMax agent Matthew Farley thinks there's room for both models, much like with discount brokers and full-service brokers in the stock industry. But he wonders whether buyers and sellers are really getting as good a deal as they think.
"If somebody's charging you a couple of thousand dollars [to sell your home], I think you have to strongly question the amount of muscle they're putting into marketing your property," he said. Farley did an informal survey of his ReMax Edina office's sales since October compared with Webdigs.com's sales, which he said showed that buyers working with Webdigs.com paid an average of 97 percent of the asking prices. Buyers working with the agents in his office paid an average of 94 percent of the asking prices, he said.
Buntz insists the company can provide "high tech and high touch" for less by making the process more efficient, using technology and agents that specialize in different points of the real estate transaction. Money is also saved because buyers find their own properties and sellers show their own properties. He thinks Webdigs.com agents, who are paid a base salary with bonuses based on production and customer satisfaction, can each handle 30 transactions per month, compared with the dozen or so that traditional agents handle on average in a given year.
"We have customers now that are calling us up and saying 'Hey, this is the address, this is the house I want, can you meet me there, can I see it tomorrow at 1 p.m. and I'll make an offer if it passes,' " Buntz said. "They don't need, and sometimes don't want, a lot of input in their searching. But what they do need and do want is to be taken through every step of the transaction."
Sellers generally pay 6 percent of their home's sales price, split between the buyer's and seller's agents, although commissions are negotiable. Webdigs.com charges sellers a flat fee of $2,000 when the home is listed or $3,000 when the deal closes. Sellers also pay the buyer's broker their standard commissions, typically around 2.7 percent.
Buy a home using Webdigs.com, and the agent keeps one-third of the buyer's agent's commission or $3,000, whichever is greater. The new homeowner gets the other two-thirds.
The idea started when Buntz, also a licensed broker, made a deal with his stepdaughter: Find the house you like, I'll help with the negotiating and paperwork, and we'll split the buyer's commission. He raised $1.5 million from friends and family and recruited a notable board, including Mosaic Co. Chairman Robert Lumpkins and Steve Sjobald, alumnus of Fallon McElligott and Fair Isaac.
Derek Kottke received about a $5,000 rebate when he purchased a home in Inver Grove Heights. "I'm not paying the full Realtor price because I know exactly what I want, what I need, and where I want to live," said the software salesman, who put his $5,000 rebate into his retirement account. He figures he did the work finding the houses to view so "why shouldn't I get paid for it?"
So far, the Webdigs.com concept is more appealing to buyers such as Kottke than to sellers. Although he couldn't share exact numbers, Buntz said the company currently has 30 listings with 50 more in the works and that they're working with "hundreds of buyers and have 60 in some stage of purchase agreement." Buntz says the company is close to profitable.
Thomas A. Musil, director of the Shenehon Center for Real Estate at the University of St. Thomas, believes consumers are feeling strapped and will find the sizable Webdigs.com refunds appealing. "There's no question I believe it will work," Musil said. But how profitable it can be is the real question.
"The ground is littered with people with really great ideas," said Steve Murray of the Colorado-based research company Real Trends. His research has shown that the market share of discount brokers has dropped from a peak of 16 percent in 2005 to 8 percent in 2006, and he figures the share is probably closer to 5 percent today. Even those who've survived aren't making money yet, he said, noting that RedFin has lost money from the beginning and ZipRealty.com's loss "is about equal" to the rebate returned to clients.
But Buntz is undeterred. The company, started with $1.5 million put up by family and friends, is in the process of completing a reverse merger with a dormant, publicly traded company in Delaware. Reverse mergers are used to bypass the expensive and lengthy initial public offerings process in order to get shares to market without raising capital to do so.
Kara McGuire • 612-673-7293
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