Ati Okelo Williams, the owner of DC Home Buzz, a real estate agency in Washington, D.C., says she is not used to feeling fearful.
Most of her life, the 35-year-old entrepreneur has made bold moves, usually without thinking twice. As a teenager, she left her native Kenya to attend college in Canada. With little money to her name, she moved to the United States after school to intern for a nonprofit. She bought her first home in the D.C. area at age 22, not sure if her $1,000 deposit check would clear — it did, and she made a $30,000 profit when she sold the house six months later.
In 2009, Williams – by then a licensed real-estate agent – left the safety of a big firm, Keller Williams, to start her own firm. At the time, the housing market was in a freefall. “I didn’t think that hard about it,” she said. “Even though the market was collapsing, there was still business.”
But Williams said she did feel “analysis paralysis” a year ago when she grappled with a new fee structure for DC Home Buzz. Despite the encroachment of online players like Trulia, Zillow and Redfin, the real estate industry remains staunchly traditional. When brokers sell a home, they typically collect a commission of 3 percent of the purchase price. (Another 3 percent of the price goes to the buyer’s broker.) Brokers like this model, but consumers increasingly want lower fees, Williams realized, particularly as the Internet has changed the way people market homes.
After consulting with lawyers and mentors, and in a bid to boost her listing volume, she decided to switch to a flat-fee model last April. Rather than taking the traditional 3-percent commission, she now charges sellers $9,900 to list and market their home. “I was not fearless,” Williams said. “I felt like I had a lot to lose.” No longer a solo entrepreneur, she had four agents at the time — including her husband, Rob Williams — and two employees who depended on her business’s success for their livelihood.
While other real estate agencies have tried offering flat-fee commissions, they tend to be discount brokers who offer minimal service. Full-service agents, on the other hand, say they offer expertise and a range of services — including staging a home for visual appeal – that justifies the 3-percent commission. Few agencies have tried marketing themselves as both flat-fee and full-service, which is what Williams’ company is doing now.
She said she is able to offer full service while charging a flat fee because she’s spent five years building a bootstrapped firm with lean systems in place. “We’re small and efficient,” she said. She uses a variety of low-cost marketing tactics — home buyer’s workshops, community events and happy hours with wine and cheese – to get the word out about her listings. Also, most of her listings are priced in the $400,000 range, so her flat fee isn’t far from what a 3-percent commission would pay.
Since she introduced the new fee structure, Williams said her listings have tripled. In 2013, acting as the selling agent, DC Home Buzz closed on 22 homes, up from 7 in 2012. Her firm handled 74 transactions last year for buyers and sellers, compared with 39 transactions the previous year. (When DC Home Buzz represents buyers, it still collects 2.5%-3% commission.) The total volume of homes sold in 2013 was slightly more than $31 million, up from $18 million in 2012, and her goal is $50 million for this year. Williams wouldn’t disclose annual revenue but said her firm was profitable.
“So far what we’ve got is really positive,” said Williams, who believes more brokers will switch to a flat fee as consumers demand it. “At some point, the industry is going to shift. So we are ahead.”
Still, Williams acknowledged that only time will tell if her business will be able to sustain the flat-fee/full-service model. Most seller’s brokers don’t want to give up the 3-percent commission, which becomes more lucrative, of course, as the price of the home rises. (For instance, if Williams sells a $1 million home, she receives $9,900 while an agent working on commission would be paid $30,000.) The cost of staging – which Williams must cover with $9,900 – also increases with the size and scale of the house. Few, if any, of her full-service real-estate competitors in the Washington area have switched to the flat-fee model.
Williams hopes to make up for any shortfall in profit with more listings. “We are relying on doing volume,” she said. Still, with her employee’s careers on the line, “when people ask me what keeps me up at night,” she said, “that’s what keeps me up at night.”
Posted: February 19, 2014