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Move over, Realtor commissions. Philly's Houwzer boasts low flat fee to sell homes

A chat with CEO Mike Maher about his two-year-old Philadelphia-based real estate brokerage.

A sign posted indicating a home is under contract. Houwzer, a Philadelphia-based real estate start-up, is trying to disrupt the industry by offering a flat-fee for commissions on the listing side.
A sign posted indicating a home is under contract. Houwzer, a Philadelphia-based real estate start-up, is trying to disrupt the industry by offering a flat-fee for commissions on the listing side.Read moreChuck Burton

A few years ago, Mike Maher, co-founder of the Philadelphia co-working space Benjamin's Desk, was itching to get into real estate.

After building Benjamin's Desk into a sought-after place that at one point would house companies such as Uber and Curalate, Maher and his wife started flipping houses. They bought and sold about a half-dozen in the city, growing frustrated by how much profit they were losing to fees.

"Between Realtor commissions and [Philadelphia and the state's] real estate transfer tax, we were paying nearly 8 percent" out of the home's sales price, Maher said. "I started asking, 'Why are we paying all these fees?' … You can't make any profit that way if you don't have significant year-over-year appreciation."

He had an idea: What if there were a way to get rid of most of the commission on the sell side? Advances in technology — including the prominence of websites such as Zillow — made it easier than ever to find homes, minimizing the work listing agents once had to do to market properties. It shouldn't cost more than $500 to market a home today, Maher calculated — a fee he thought buyers would be willing to pay.

So along with former developer Kevin Baird, Maher created Houwzer, a Philadelphia-based brokerage. Maher's idea wasn't entirely new — discount brokers have been around for a while, offering such deals as a 1 percent commission compared with the usual 3 percent. (In most transactions, a commission of between 5 percent and 6 percent is deducted from a home's sale price and typically split between the buyer's and seller's agents.)

But by charging sellers a flat $495 for the closing administrative fee (technically, Houwzer's commission is 0 percent) — a payment made only if a sale closes — Maher believed he could still offer a "full-service" experience, and do it for thousands of dollars less.

The Inquirer chatted with Maher to talk about his service, which is now two years old. Answers have been edited for clarity and length.

Question: What made you believe the traditional model needed to change?

Answer: Research shows that 90 percent of people start their home search online. And the minute someone posts a home on the Multiple Listing Service, it is syndicated to other sites. Agents immediately know, and the buyer immediately knows a property is listed. We believed that it no longer costs 6 percent [of a property's price] to sell a home, and that the fixed costs — the sign, the lockbox, the virtual tour, the video, the open houses, the technology — do not cost more than $500.

Q: I've written before about new photo and video technology that can get pricey. How can you ensure costs will be less than $500?

A: Houwzer works with a local partner called HomeJab … who gives us good pricing. And we always get 25 exterior shots, interior shots, and the virtual tour. And we mandate that for all of our listings. The consistency [among our listings] is unparalleled.

Q: So a $495 flat fee. How do you make money with rates that low?

A: We ask our sellers that, if they had such an amazing experience, if they would considering buying with us — not necessarily today, but in the future. If they would tell their friends and family. We have a team of salaried buyer agents. With our model, a seller pays us the $495 fee. But the buyer's broker in the deal still gets a 3 percent fee, too. And many times, the sellers are also buyers, so we see it as an opportunity to work with them and make money there.

Q: But there's no guarantee they will work with you, right?

A: We made a big bet that people will say, 'We had a great experience, we now want to buy with you.' We're getting more buyer deals than we have listing deals. People are referring their friends. … Look at the power of Yelp in how people make their decisions. And it's not just our listings that they are buying — they're buying any home, so Houwzer as a brokerage makes that commission on the buy side.

Q: Are your employees licensed agents?

A: Not only are they fully licensed by each state in which they operate, they are also members of the Greater Philadelphia Association of Realtors, the Pennsylvania Association of Realtors, and more. We also pay for them to become certified in things like a negotiation expert. All agents are salaried.

Q: How much have you grown?

A: By the end of 2017, we'll have done 1,000 sales in two years. We have 35 full-time employees. We'll be at 50 by the end of the year. We have offices in Philadelphia and Haddonfield, N.J. We're opening up an office on the Main Line, and expanding into another major market in the next six to 12 months.