The truth about the "Best Agent" websites
If you have been searching for homes online, then you have probably seen a few of these eye-catching titles:
“We will find you the best agent…for FREE!”
“Get matched with agents for FREE“
“Get free recommendations for top real estate agents in your neighborhood.”
What you should know about these "free" platforms is that they take a cut of the commission that consumers pay their agent and call it a "Referral Fee."
These platforms are exploding in real estate and can be found all over the internet. Some examples of referral platforms are Dave Ramsey LP, UpNest, Homelight, Sold.com, EBA, Rejected iBuyer Offers, Redfin Partner Agents, Parts of Realtor.com, Parts of Zillow, Ojo Labs, Effective Agents, House Canary, Home Captain, Lemon Brew, etc. Online lenders like Tomo, Better, Blend, etc. also have similar programs in place. You can find a detailed review of each company and how they profit from your info at HomeOpenly.
Here is what you need to know about these best agent platforms before giving them your information
Referral fees are hidden in your representation agreement
Referral fees are agreed upon without you and prior to you entering into a Representation Agreement with your real estate agent. When an agent/broker receives your information from Referral Fee Network, the agent/broker knows that a hefty referral fee must be paid once the transaction closes. After the signing of a contract for a transaction resulting from a referral, the agent/broker must notify the Referral Network and inform it of the expected closing date, the transaction total, and how much Referred platform received in compensation. According to HomeOpenly, these fees are hidden in the form of an excessive commission.
Referral platforms prevent real estate agents from competing for you and your chance to save money
When a Referral Fee Network is paid from the agent’s final commission in the form of a referral fee, this act removes any incentive for the agent/broker to give you their best rates. The reason for this is that most real estate agents/brokers do not advertise their rates; you have to ask them what they charge. This means that the agent/broker will quote you a very different price knowing that they have to part with 25%-40% of their commission. Moreover, it doesn’t cost anything for the agent/broker if they miss your business – there are no upfront costs to join or use a Referral Fee Network.The Referred Broker has an incentive to quote you his worst rates because it yields the highest revenue without a downside. Economists refer to this process as reverse completion. Reverse competition is competition not for the consumer, but for the middle-man who steers consumers toward its network of brokers (and away from competitors). According to economists, reverse competition results in low quality of service and higher commissions.
Here is an example of what the commission looks like when you use this platform to find a listing agent
Home Sale: $300,000
Commission at 5.5%: 16,500
Listing Agent Commission: $8,250
Fee to Referral Platform: $2,227.50
Listing Agent and Broker final payout: $6022.50
Even if your agent doesn't raise their rate, you could have less opportunity to negotiate a lower rate or buyer's rebate with your agent because they are already giving up $2.227.50 to a referral network.
