Dream Town's Real Estate Groupon

No, you can’t get a house for 50% off. However, the big real estate news yesterday was that Dream Town came out with a Groupon offer (you have to register). For $25 you get a coupon worth $1000 cash back at closing. Here are the major fine print points:

  • Minimum transaction size $150,000
  • Must close on the buy side or list on the sell side by 4/9/12
  • Not available to current or past clients

rebate.jpgAs of this point in time, with about 3 1/2 days left, 95 coupons have been sold. The tipping point was 50 coupons, which was reached mid-day yesterday.

This idea has been kicked around for a while now and it was only a matter of time before someone did this. It’s an exceptionally clever way to generate leads but you have to be big enough to be able to handle the potential influx and, arguably, you should be a full priced brokerage.

Is this a good deal for consumers?

As with most things in life, it depends. My general rule of thumb is that quite often one man’s goose is another man’s gander (that was intentional).

For starters, what’s the deal with exclusion for current and past clients? That’s awfully stingy isn’t it? Reminds me of the Ally Bank commercial with the kids and the free ice cream.

As for the economics, on a $150,000 transaction this is a great deal for consumers and Dream Town will get killed. Let’s say the realtor takes the buyers out to see 20 homes and sees the transaction through closing. Well, that’s a lot of work and the total commission at 2.5% – $200 would be only $3550. Rumor has it that the Dream Town agents only get 35% of that, leaving Dream Town with $2307.50. That means that Dream Town is giving away 43% of their margin! And it’s hard to find a realtor that will discount a $150,000 transaction so there aren’t a lot of alternatives out there.

But suppose you’re looking at even a $200,000 transaction? Well, why would you pay $25 for an inferior deal than what you can get for free? You see, all you have to do is go to Google and search for Chicago Discount Realtor to find a brokerage that will discount the sell side commission – usually starting at 5% – and that’s without any restrictions on when you list your property. I don’t know what commission rate Dream Town will negotiate for these Groupon users but if they use 6% on a $200,000 deal and rebate $1000 then the effective commission would actually be relatively high at 5.5%.

On the buy side you can search for Chicago Homebuyer Rebate and you will find any number of brokers willing to pay you to work with them. Usually they give at least 20% of their commission to the buyers and with higher priced properties the percentage often goes up. So for a $200,000 property with a 2.5% – $200 commission you would get back $960 and it goes up from there. On a $1,000,000 property the rebate could easily be close to $13,000 or even more. So if you are looking to spend more than even $208,000 you would be better off without the Groupon.

In light of these economics I’m really curious as to who bought these Groupons. Was it the savvy consumer under $200k or was it the naive consumer above that amount? I’m willing to bet that a lot of people fall in the latter camp. Based upon my own experiences I can tell you that realtor discounts and rebates are still surprisingly a big secret.

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