Is this the right time to start or expand your discount realty business?

Though real estate sales are down nation-wide, Condo Domain announced they’re expanding into several markets, Seattle included. Most real estate firms across the country are struggling. Zip Realty has yet to make a profit. Redfin hasn’t shown a profit either and has had to raise their prices, while quietly eliminating the listing agent contact info that they originally had on their site.

Another Seattle discount/rebate company Findwell has purchased a cute name, has a cute little logo’d car (think bankrupt real estate firm Foxton’s) and has both a static and a map search, but only made about 19 sales since they’ve started (Seattle Business Journal) and 10 sales total in 2009. The average sales price was around $400K and based on a 3% sales commission, they’ve netted about $60K so far in 2009. They have 6 agents and brokers listed on their roster, so that’s about $10K per agent for the first 5 months of 2009, and that’s before taxes and marketing expenses.

In the big wide world, there will always be desperation and individuals willing to undercut the competition, cross picket lines, become scab labor and participate in buy-downs, kickbacks and pay-outs, no matter what the business.

The Condo Domain expansion coincides with their announcement that their prior business plan of refunding all but $5000 of the commission wasn’t making any money, so they’re moving to an a la carte plan where you only get that if you don’t need to tour more than 3 properties. They’ve found that in their business the average buyer tours 14 condo’s before buying, so in that case, they’ll refund 20%, similar to Zip & Redfin. But again, none of those companies are making a profit. They are essentially giving away their profit to the buyer in order to capture the buyers business, and they’re betting they can capture enough market share before the money runs out.

Interestingly enough, Condo Domain seems to be expanding after making only 33 sales. (33 sales! Condo Domain White Paper) This reminds me of Buyside Realty, the discount firm that tried to launch an IPO with a million dollar loss. They have since gone out of business.

Perhaps that fabled “6%”, spread out over all of the sales, from $200K condo’s to $2M luxury homes, when that amount is averaged out, that percentage miraculously equals the amount of money it costs to run a real estate business. Maybe, just maybe, owners of brokerages have actually looked at the books, consulted with accountants, tabulated results, crunched some numbers, and came up with this simple formula that will allow them to stay in business. Could be. Just sayin’.

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