How low could your commission go? Take a look at how the UK sells homes

Analysis by Anna Cooban, CNN

London (CNN) — A multibillion-dollar settlement in the United States agreed last Friday has opened the door for alternative models of selling real estate, and likely spells the end to 6% commissions on home sales.

American homesellers excited by the prospect of paying substantially lower fees — and realtors equally fearful of a huge cut to their income — need only look across the pond for an example of what might happen next.

An influx of low-cost, online-only real estate agencies in Britain has shaken up its housing market in recent years, offering sellers highly competitive upfront fixed fees for a basic package of services.

“Sell your home for free. No bull,” promises one such agency, Purplebricks, on its website. The company, founded a decade ago, offers sellers a valuation and a listing — “everything you need to sell your home” — for free.

Sellers can choose, however, to pay for a range of services considered standard among traditional real estate agencies, and many of them do. Purplebricks charges £899 ($1,142) to have one of its agents conduct property viewings, for example, and £699 ($888) for a package that includes professional photos.

But that’s still a much sweeter deal than the typical £2,850 ($3,616) a UK homeowner can expect to pay a traditional brick-and-mortar agent for a property priced at the national average of £285,000 ($362,022).

That’s based on the average agency fee of 1% — a figure provided by Nathan Emerson, chief executive of Propertymark, a trade body representing 18,000 real estate agents in the United Kingdom, including Purplebricks.

Online agencies accounted for just 5.5% of homes sold across the UK in the last three months of 2023, according to property data firm TwentyCi. And that share declines as the value of a property increases.

Even so, Paula Higgins, chief executive of campaign group HomeOwners Alliance, says the proliferation of agencies like Purplebricks has “fundamentally changed” the UK real estate agency market, making it “much more competitive and transparent.”

The National Association of Realtors, a powerful trade group representing 1 million US realtors, said Friday that it would pay $418 million to settle an antitrust lawsuit brought by homesellers arguing that it had forced them to pay inflated rates of commission.

The NAR said it would introduce new rules that effectively dismantle the current homebuying and selling process, in which sellers pay both their broker and a buyer’s broker a standard combined 6% commission based on the final sale price.

The changes should boost alternative models of selling real estate that already exist but don’t have much market share, including via flat-fee and discount brokerages. Real estate commissions are also likely to fall across the board, because of the new rules, according to TD Cowen Insights.

A ‘do-it-yourself’ service

In Britain, upstart online agencies offering flat fees have failed to meet the lofty expectations of the early 2010s, when Purplebricks burst onto the scene.

Their market share has fallen steadily from a high of 8.2% in the final quarter of 2019, according to TwentyCi, which started tracking the data the year before. That could be because they forced the incumbents to trim their fees and improve their offering.

“Having that competition, it (has) really upped the game of the high street estate agents,” Higgins told CNN, noting that traditional players now have a greater online presence and are more open about what their fees pay for.

Several UK online agencies have gone bust in recent years. The HomeOwners Alliance website used to list 15 online agencies. It now only lists five.

Purplebricks, once the breakout star, issued a profit warning last year before its rival, Strike, bought it in a rescue deal for just £1 ($1.27).

Sam Mitchell, chief executive of both companies, told CNN that 60% of people selling homes on Purplebricks pay for an upgraded service. The agency also makes money through its mortgage brokerage arm, and by offering some legal services, he added.

“The cheap fee model hasn’t worked, we’ve seen that with all the businesses that have started and failed,” said Adam Day, who is leading the UK expansion of eXp, a US-based real estate agency. “For Purplebricks to (sell services) for free, what is this model going to look like in two to five years’ time?”

Day, who founded one of Britain’s first online-only agencies in 2006, told CNN it was “impossible to run an estate agency on cheap fees and make a profit.”

Higgins, at the HomeOwners Alliance, suggests an explanation for why these agencies have failed to enchant more sellers: “You might be paying rock-bottom fees, but it can be a do-it-yourself service.”

Sellers, paying these agencies nothing to relatively little, are typically required to put in most of the work, taking photos of their property, finding potential buyers, arranging viewings and negotiating offers, she said. That doesn’t work for everyone.

“If you are selling and you’ve got a local estate agent, they’ll have people on their books that are probably looking for properties on that street, and they’ll know, almost, who’s living in whose house,” she said.

While online agencies offer sellers “flexibility and choice,” says Emerson, at Propertymark, in a tricky housing market where it’s harder to sell properties, would-be sellers tend to opt for traditional agents whose business model is based on completing a sale to get the commission.

Online agencies, in contrast, usually take a flat fee from sellers to list their property, whether or not it eventually sells.

“You’re paying for them to market your property. If it sells, it sells, if it doesn’t, it doesn’t, you still pay…. you’re not paying them to sell your house,” Emerson said.

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