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Low fee? Let's deal

Facing smaller profits, more sellers consider discount brokers.

December 02, 2007|Frank Nelson | Special to The Times

IF you think these must be tough times for real estate agents, John Thyne has news for you.

"The current market is great for us," says the co-founder of Santa Barbara-based Goodwin & Thyne Properties, one of a growing number of discount brokers serving Southern California.

The depressed state of the housing market has renewed debate over commission charges, with some people arguing they're too high and should come down while others make the case for raising rates. In this uncertain environment, sellers are starting to pay more attention to discount brokerages and those that offer flat-fee services.

That doesn't surprise Thyne, who reckons that homeowners, squeezed between stagnant sales and static prices, and watching already skinny profit margins shrink even more, are looking for alternatives to traditional, more expensive brokers.

And that's just what Goodwin & Thyne has been offering since January 2004. The company, trumpeting "full service at a fair price," charges sellers only 1.5% commission, a far cry from an industry average hovering just above 5%, of which half typically would go to the seller's agent.

"It rose to 5.18% in 2006, and I expect a similar rate in 2007," said Steve Murray, editor of REAL Trends, a Colorado-based publishing and communications company offering analysis and information on the residential brokerage industry.

The discount brokerage business model, permutations of which have been pressed into service by major players such as Help-U-Sell, CataList Homes and Assist-2-Sell, has long ruffled the feathers of traditional realty agents, who argue that you get what you pay for. Pay less, they say, and you get less -- exposure, time, attention and service.

Not so, insists Thyne, ticking off all the usual marketing initiatives offered by his company, such as signs, lockboxes, open houses, print and online advertising, photographs, fliers and direct mail.

He added that his firm stays engaged with clients all the way, helping conduct contract negotiations, arranging inspections and repairs, and acting as a liaison with title and escrow companies.

But real estate transactions usually involve agents on both sides of the table expecting to be paid. Thyne says that in about 40% of their transactions there is no buyer's agent. In cases, for example, where his company finds the buyer, there is no commission paid on the buying side. In the other 60% or so of cases, the company leaves it up to the seller to offer what he or she likes to the buyer's agent. He says the majority offer 2.25%.

When Goodwin & Thyne acts as a buyer's agent, it takes all of the commission offered and rebates anything above its 1.5% limit to the buyer.

Though rival operators may not appreciate this brand of competition, it appeals to homeowners such as Debbie Phelps.

"It's all about walking away with money in your pocket at the end of the day," said Phelps, who estimates she and husband Doug saved about $30,000 when they listed with Goodwin & Thyne and sold their Goleta home in June.

The couple decided to purchase the 2,800-square-foot, three-bedroom, three-bathroom property for $1.1 million in 2003 and then sold it for $1,375,000 when Doug Phelps, a school principal, changed jobs. They have since bought in Newport Beach, paying slightly above their Goleta sales price for a 50-year-old, remodeled family home with three bedrooms and an office.

Phelps doubts they would have gotten a better price for the Goleta property with a non-discounted realty agent. "Why would you pay someone else much more money when you can get the same job for a fraction of the cost?" she asked.

The number of people considering that question -- and coming up with the same answer -- has boosted Goodwin & Thyne's bottom line. In 2004, the company completed 22 transactions worth around $13.5 million; last year, 74 transactions worth $67 million.

They have already passed that dollar amount this year, Thyne said, with the help of deals ranging from a $137,000 mobile home on leased land in Ventura to a $6.75-million home in Carpinteria.

In less than four years, the staff has mushroomed to 28 agents, and the company has just opened its fifth office, adding Santa Monica to branches in Ventura, San Luis Obispo, Lompoc and Santa Barbara.

Why then is Goodwin & Thyne willing to work for less? Thyne said its founding philosophy was to charge less because it believes it's the right thing to do and because it could see no justification for charging the same high rates year after year as property prices rose dramatically. On a purely practical level, he said, the company's performance to date shows it can still operate a profitable and successful business even while charging less.

Providing another alternative to traditional firms is the growing number of brokerages such as Irvine-based Help-U-Sell and Reno-headquartered Assist-2-Sell, which allow homeowners to choose from a menu of flat-fee services.

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