Property Grunt

Thursday, December 01, 2005

Welcome to the Jungle

Recently, Janis Mara of Inman news did an article on Urban Jungle Realty which has joined the ranks of Foxton's as a discount broker which is focused on providing services for the buyer.

According to Alison Bernstein, founder of Urban Jungle Realty:

Bernstein, principal broker of the Urban Jungle Realty Group, emphasized that her service is focused on "the Internet-savvy, aggressive buyer who knows New York City," the kind of buyer who, like more and more clients these days, does research online and knows what he or she wants.

The broker pointed out that since New York doesn't have a multiple listing service, clients who do their homework often know as much about a neighborhood as a real estate agent would. Buyers can do their research and go to open houses on their own without Urban Jungle agents escorting them – and hence save time and money for the agents and ultimately the clients.

From my experience I have seen buyers who have become quite savvy to what they want and what the market offers. Not only have they been searching for awhile but they also have access to more information than ever.

"Nobody wants to work with buyers because they're a headache. They say they want a two-bedroom today, and then it's a split-level tomorrow. Or they waste the agent's time driving them around and then say, 'I don't want to buy anything,'" Bernstein said.

By not escorting clients to open houses, Urban Jungle agents can spend their time on more financially rewarding activities, she said. Additionally, Urban Jungle administrative staff handles all the paper shuffling agents are usually stuck with, such as coordinating attorneys, inspections, board packages and answering the phone, Bernstein said.

Yes. This is true also. I have been burned by many a buyer by used as a tour guide. It is quite annoying. Although her model is unorthodox it does have possibilities.

"If a buyer visits an apartment and decides they want it, they can whip out their cell phone and call our 24/7 call center, and an agent will take a cab to meet them and write the offer," Bernstein said.

A real-life example: "In one of our first deals, our buyer came to us and said, 'I want an apartment in this building.' Okay. Done. In 10 minutes," Bernstein said. "So why should I expect a 3 percent commission?"

Elaborating, the broker said, "In this case it was a new development. We contacted the listing agent, we negotiated and made sure the process was conducted properly, but look: a dream for the buy side.

"The purchase price was a million thirty-five," Bernstein said. "Under a conventional 3 percent arrangement, I would have earned $31,050. But I only took $7,000. How dare I take money from you when you have done your homework and done so much of the job from me?"

The end result was quite satisfying,

In the case of the aforementioned client, "We negotiated and got to this price, a million thirty-five, and upon accepted offer, I said, 'Let me step in. I do not need all this commission,'" Bernstein said.

"Meaning I'm going to reduce my commission to the seller's agent and say instead of taking three percent I'm going to take X percent, so at the closing table, don't write me a check for $31,050, write me a check for $7,000 and reduce the buyer's purchase price by the rest," the broker said.

Basically by taking a cut on the commission she has given a discount to her buyer for the purchase price. It sounds fantastic. However Ms. Bernstein points out that Urban Jungle Realty is quite specialized.

The broker emphasized that her service is not for everyone.

"We are not for people who are relocating to New York. We don't have time to take them on a tour and say, 'This is Lincoln Center,'" Bernstein said. "There are many other excellent brokerages here who can do a great job at that. Foreign buyers, out-of-town buyers, that's not for us. We're geared toward the specific demographic of demanding, market-savvy buyers."

The model that Ms. Bernstein is using is what is what I liked to call the Chinatown model which is to sell low but make your money in moving high amounts of volume. There a ton of savvy buyers out there who know what they want and go out on their own without a buyer's broker. However it doesn't hurt to have someone in their corner to coordinate all the details and make sure that they aren't getting screwed over.

The only party I can see getting annoyed are the selling brokers. A direct buyer usually means a broker gets a 4% commission all to themselves. The last thing they want to do is share that commission to some agent who just popped into the deal the lat minute. In fact most selling brokers will go apes**t over a discount broker even if they are getting the larger portion of the deal. Why? Because they want it all especially in a soft market.

Another thing that will probably happen is that sellers will demand to renegotiate the commission because co-brokes usually means a 6% commission will be provided by the seller to be split by the two parties. However, if it turns out that a discount broker is only taking less than half of the 6%, the seller is going to demand to lower the commission since the selling broker is taking the majority of the split.

As discount brokers become more popular, I do forsee sellers demanding a clause in their exclusive agreements that if a discount broker is involved with the transcation than the commission will be reduced.

Now if REBNY takes a page out of the NAR playbook and demands minimum serivce laws well, that is when things are going get completely out of control.