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Should you win clients by discounting your commission? UpNest says yes — and 3,000 agents agree.

Competing for listings is a fact of life for agents — and the competition can be fierce. To agents, the reasons why homeowners ultimately select an agent can seem capricious and even self-defeating (if they’ve selected a weak agent instead of you). Most agents are loath to cut their commissions to get a deal. Spend a few minutes on Facebook searching for “discount commissions” and you’ll find an outpouring of angst about reduced fees.

Then there are the companies like Houwzer, that say that the costs and time necessary to list a home in a “hot market” are marginal at best. They imply that the house can practically sell itself. Houwzer goes so far as to offer to list properties for zero commission, which is an anathema to virtually every agent who makes a full-time living by selling real estate.

The truth is that commissions have fallen to a national average of 5.4 percent, and in many cases, even less. Having just sold and purchased a home, I can attest to this: as a seller, I paid just five percent, and the commission on the house I purchased was approximately 4.5 percent. In percentage terms, that’s a 17-25 percent discount over the standard six percent commission.

I’ve heard plenty of horror stories from agents that say consumers want even higher discounts on traditional commissions, and make their decision based on commission alone.

“What about the service and dedication?” these agents say, and point to the fact that they provide as much service to any home seller, regardless of the commission actually paid. Yet the cold truth is, agents are in control of what they choose to charge for their commission.

I think Leslie Ebersole, a Chicago-area agent from Baird & Warner, and a moderator of the Raise the Bar Group on Facebook, put it best in this lengthy discussion on commissions:

This conversation always makes me want to shake people. It’s just wrong to assume that the amount of commission is tied to the effort and results. If an agent or broker wants to charge some amount that another agent wouldn’t charge, that’s his business. If commission percent in the aggregate created success, would charging 2 chickens, 3 cows and a breeding sow mean my clients would get different results than if I charged just 2 chickens? Of course not.”

Yet as the industry frets about commissions (or lack thereof), plenty of online players are ready to help consumers wrest a better deal from agents.

One of those players is UpNest, a firm that originally started out as Less Than 6 Percent (LT6P). The premise, according to Simon Ru, UpNest CEO and founder and a seasoned technology executive, is that consumers should never overpay on commissions, and that it should simply be easier to find an agent when you need one. The mantra is so deeply held it’s front and center on the company’s website.

“Consumers deserve transparency,” Ru explains. “We think that consumers want to know clearly what agents have to offer, and how much they’ll charge on commissions. And since most consumers don’t know that commissions can be negotiated, we’re providing knowledge and connections to top agents who want to work with savvy consumers.”

Ru says the fundamental idea of UpNest is to connect qualified home sellers to agents. But, if the consumer can negotiate a better deal with an agent, UpNest is happy to facilitate that too, if only by making consumers aware of the possibilities.

“Agents are our first priority,” Ru says. “We live and die on their success. We’re about delivering qualified seller leads to top agents, not about commission negotiations.”

That’s why the company has massaged its message over the last year to say that commissions ought not to be the sole factor in selecting an agent — and took down the nettlesome LessThan6Percent.com domain and changed its name.

Yet since the “never overpay” message is so prominently featured on the “new” UpNest, it’s hard to disassociate the discount mentality from the site. Even the company’s intro video says that it will negotiate commissions.

While it might seem that agents would be upset about a site that patently tells consumers they can negotiate a reduced commission, some of the 3,000 agents on the UpNest platform say the direct approach actually works for them. That’s because the online advance negotiation takes away the awkwardness of discussing commissions with clients — and agents are happy to have yet another lead source available to them that it based on performance.

How it Works: Sellers

UpNest attracts sellers via search engine optimization, predictive direct mail, paid search and limited display advertising. The company is just getting going, and though it’s strongest in California, it claims to have a national presence. It’s getting just under 100,000 visits a month, according to several online traffic estimators.

If a seller decides to solicit a proposal from UpNest’s roster of listing agents, they fill out an online form that asks them to describe the property they want to sell, timeframe and location.

UpNest will then manually screen the submission. An UpNest advisor will call the homeowner to verify the details about the listing, including whether the seller is working with another agent (which ostensibly disqualifies them from working with an UpNest partner agent).

If the home is worth more than $400,000, UpNest may even throw in a free virtual property tour. Most important, UpNest confirms that the home will be ready to list in 90 days. When all the boxes are ticked that the seller is viable, UpNest will manually match up to five agents in the area to the listing.

Agents who get the call (or text or email) then have 24 hours to login to UpNest to submit a proposal to the seller within 48 hours.

UpNest makes responding to a seller on the platform easy; once you fill out your magazine-like profile, the companion listing proposal is pre-populated with whatever information you’ve provided. You can modify it as you see fit based on information about the listing. It’s slick and simple, and it’s possible to edit and submit your proposal on a smartphone or tablet.

UpNest says that agents who respond the fastest, and with the most complete profiles, are much more likely to win the listing. As an incentive to get agents to completely fill out their profiles, UpNest will create an automated marketing video like this one for you:

A fully populated profile includes biographical information, links to social accounts, Yelp! reviews and your Zillow profile. You can also upload past listings with pictures and pricing data.

Design-centric Listing Proposals

The UpNest listing proposal is presented digitally and appears in the seller’s dashboard. It’s heavy on infographics and pleasing to the eye. Since every agent uses the same tools to create a listing proposal, they’re identical except for the content you create. And that’s where, according to Ru, agents win or not.

Since the proposal is so easy on the eyes, sellers could read it in as little as 60 seconds. But Ru says most sellers will spend 5-7 minutes with each proposal — still a relatively quick process for such an important decision.

Since sellers can look at the proposals at any time on any device, Ru claims that those that are accompanied by a “voice proposal” are twice as likely to be selected by consumers. A voice proposal can be recorded on the UpNest site as you create your proposal.

UpNest allows agents to specify their commission, and provide a list of services they’ll provide (professional photography, single property website, postcards and flyers, landscaping, staging, advertising on Zillow or Trulia or even a video tour). They can also provide a suggested sales price on the listing. All without talking to the customer, pulling comps or even knowing the address of the subject property.

Submissions are final, so it’s important to mind your spelling and grammar as you prepare your proposal.

If your proposal is accepted, you will receive the client’s contact information for follow-up. Otherwise, the seller will remain anonymous. If you don’t win the beauty contest, your proposal will be moot, and it will be marked as closed in your dashboard.

Referral Agreement with a Bite

Presuming that you win the beauty contest and enter a relationship with the seller, the terms you accept as part of the referral agreement are somewhat onerous.

• UpNest takes a 30 percent referral fee off the gross commission (before your broker’s split)
• UpNest can collect their referral fee for up to 18 months.
• UpNest collects a referral fee on every transaction you might conduct with a seller in the original 18-month period. In practice, this means that if you sell something to a client you got through UpNest, and they purchase another property within 18 months, you owe the company 30 percent on the additional transaction too.
• If your broker questions the validity of the referral agreement signed with UpNest, you are personally liable for the referral fee due
• UpNest’s fees are due within five days of closing. If the fees are not paid timely, there is a 50 percent penalty due, above and beyond the original fee.
• If there is a dispute, all claims will be settled via binding arbitration. When you sign your referral agreement, you waive your right to a jury trial.

While the terms are strict, they make sense. That’s because UpNest also provides cash incentives to buyers and sellers above and beyond your commission discounts and rebates to encourage them to use agents on a repeat basis.

For example, the company entices sellers to list again with a partner agent with a rebate (UpNest says this averages $5,000 per listing) that is paid by UpNest when the property sells.

For buyers, the company offers up to $300 in rebates when clients periodically update their transaction in the platform. This is on top of whatever rebate the buyer’s agent offers as part of the original proposal.

Low Value Facilitators, or High End Advisors?

However you slice it, UpNest facilitates lower commissions, and drives consumers to its partner agents via various rebates and outbound marketing.

The company’s tagline is “agents compete, you win” — a deft setup up to the premise of UpNest’s business, which is to drive business to partner agents who are wiling to play the commission negotiation game and compete for clients (and pay a referral fee).

All of which brings me to a question: Is this the future of real estate?

Since the typical agent earns 20 percent of their business through personal referrals and repeat clients (according to the National Association of Realtors 2015 Member Profile), there’s obviously a wide gap between the actual amount of business earned through an agent’s personal sphere, and leads generated via online services like UpNest.

Yet I wonder why UpNest’s partner agents, who must meet relatively simple standards to participate on the platform (three years in the business, current license and six transactions in the last 12 months), are willing to compete on commissions — when commissions are so clearly in decline nationwide?

Is it because this is the “new” agent — one who is fiercely competitive, and will do whatever it takes to win business? Even if it means cutting commissions and offering rebates? Or is it a part-time agent, anxious to score business in every way possible? Or is it for top agents, who do dozens of deals a year and see the handwriting on the wall?

From a brand point of view, I tend to frown on discounts on service businesses (and real estate is a service business). While it’s entirely appropriate to negotiate your fees (and I do it all the time in my own business), I never go into a deal announcing that I’m offering the best price around. Fees are just one aspect of why any client chooses to work with you, and I don’t believe they should ever be the ONLY reason (unless you’re WAL-MART).

Which brings me to my fundamental question about UpNest. Why set up a business based on commission discounts in the first place?

Who is the ideal agent for UpNest?

Ru, UpNest’s CEO, told the Phoenix Association of Realtors in February, 2015, that he believes that in the next 5-10 years, the real estate profession will develop into two segments: low-value facilitators, and high value advisors. The question is, which segment is UpNest built for?

That’s a call only you can make.