Lisa Naila thought she might be heading for trouble when her real estate agent's mother wanted to buy her La Crescenta home.
Naila feared she would be pressured into giving a sweetheart deal, so she was happy when the offer came in at the $625,000 asking price. But she was surprised when the agent, Paul Yalnezian, insisted that the home be listed to test its value. He found a buyer willing to pay $65,000 more.
"I took the offer and his mother didn't get the house," Naila said. "He didn't have to do that."
Yalnezian delights in defying clients' worst expectations. He says that his Glendale-based residential real estate brokerage, Right Home, is free of the conflicts of interest that plague other firms. Instead of receiving commissions, his agents are paid a salary.
"I've founded a business that better fits my character," he said.
At Right Home, agents receive a salary plus a bonus for every deal that closes. Instead of the typical 3 percent fee for representing a buyer or a seller, Right Home collects 1.5 percent.
And unlike the every-agent-for-himself model that's typical in most offices, Right Home encourages teamwork. "A one-man band like the ones you see at a carnival will draw a crowd of onlookers," Yalnezian said. "A 16-piece orchestra draws an audience of intent listeners."
Right Home is among a handful of real estate upstarts that have tinkered with the one-size-fits-all commission that's been locked in at 6 percent for years. With home prices surging, the same house generates double the commission it did several years ago.
Customers may gripe, but by and large they have stuck with full-price agents. One reason: the industry has consolidated, leaving just a few dominant players.
In L.A., ZipRealty Inc. and Help-U-Sell are among discounters that have gone head-to-head with powerhouses such as Century 21, Coldwell Banker and Sotheby's International Realty all owned by Cendant Corp. and Re/Max International Inc. Few brokers besides Right Home are known to pay agents salaries instead of commissions.
Right Home got started in 1998 when Yalnezian left his job as a mortgage broker because he says he was tired of residential real estate's "ugly side, behind the scenes." Last year, the company generated commissions and other revenues totaling $2.5 million, up from $2.1 million in 2003.
In the traditional model, real estate agents work for a brokerage but are technically self-employed. For each buyer or seller they represent, agents share in the firm's commission. Yalnezian believes this system encourages agents to chase after commissions steering clients, for example, to choose buyers represented by their friends. Most of his fire is reserved for agents who he says will do anything to "double end" a deal. That's when a listing agent waits to find a buyer he or she can also represent pocketing both ends of the commission.
"Agents have a fiduciary duty to protect the interests of their clients," Yalnezian said. "But agents also act in the best interests of themselves."
Jim Hamilton, president of the California Association of Realtors, defends the traditional model. "If all I did was work for my commissions, I wouldn't be in business very long," said Hamilton, an agent in the Redondo Beach office of Re/Max Execs. "My business is based on referrals and if I'm not serving my clients they aren't going to recommend me to their friends and associates."
Still, Hamilton admits, conflicts of interest can arise, and it's the responsibility of the agent to reveal them to the customer. Many of companies don't encourage representing both the buyer and a seller on a deal. "But that agent, especially in that situation, is going to do the best for each client," he said.
There are potential flaws in the Right Home business model, too. Agents who collect a salary may not be as motivated to satisfy clients as those who work on commission. And while Right Home agents are encouraged to work as a team, the firm still sets quarterly quotas and pays bonuses.
Yalnezian argues that his model allows agents to work together on deals without added cost to the customer. And he says the real estate lobby uses its power to block any changes in the traditional model. "From my perspective, it's operating in the age of the dinosaur," he said.
He's found a believer in Naila. After selling her La Crescenta home, she had a bad experience with a traditional agent who happened to be her brother-in-law's brother buying a home in Northern California.
Out of gratitude for her business, the agent told Naila that he would pay for her home's inspection. Instead, it was tacked onto the closing costs. "It becomes uncomfortable to ask a family member for money," she said. "If Right Home was in Northern California, I would have used them again."
* Right Home
Year Founded: 1998
Core Business: Residential real estate brokerage
2003 Revenues: $2.1 million
2004 Revenues: $2.5 million
2003 Employees: 16
2004 Employees: 19
Goal: Be rewarded for vision and hard work
Driving Force: Reforming the real estate industry for the benefit of the consumer
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