"Discount Brokers play an important part in today's real estate market for those who cannot afford to pay for premium services."
The Future of Discount Brokerages
Anyone who's been seriously following the real estate market knows that this fall is a totally different market than we had last year or even this past spring for that matter.
Last summer we could (and did) sell almost anything that hit the market for the full list price. This is what's known as a "Seller's market". For that reason the most desirable situation for a Realtor was one that included several nice, appropriately priced listings.
The market was so fast that we Realtors didn't earn our commission by finding a Buyer but by getting the transaction from contract to settlement. You'd be surprised how much work there is to this process. dealing with lenders, title companies and/or attorneys, negotiating contingencies, kick-outs, requests for repairs after inspection, etc.
But because homes went under contract so quickly, it was easy for various discount brokerages to crop up almost overnight. You know them. Help U Sell, Next RE, Buy Owner, etc. Because homes in almost any location and in any condition sold very quickly, these discount brokers, who promised a quick sale for a much smaller commission, thrived.
But what happens now that nice homes are sitting for 30 or even 60 days before getting an offer? What happens now that there's real marketing involved in the sale of your home?
Let's see how this works: if you list your home with a discount broker that promises to "do it all" for just 3.5% commission (or less) what happens to that money? Routinely, half of the commission (or 2% in most discount broker listings) goes to the Buyer's agent's company. Then a portion of that - sometimes as much as 50% is kept by the company and the rest is past on to the Buyer's agent. Can you see why a Buyer's agent would rather show homes listed at a higher commission rate before they show yours? And if there are several in your area for sale, yours will be the last one sold.
So let's move on. If you sell your home for $200,000 at a 3.5% commission most discount brokerages keep 1.5%. That's $3,000. If they give the your listing agent 2/3 of that, that's $2,000. Let's subtract 20% off the top for taxes. Now we're down to $1,600.00. It costs about $1,100 a year to belong to the national and local boards (and we have no choice to not belong) and lease our electronic keys (also no choice most of the time) and belong to the multi-list in our area (without which we couldn't do business). Now we're down to $500.
From that $500, Realtors buy gas - at upwards of $3.00/gallon - to drive Buyers (and just lookers) around from house to house. My gas bill last month was $250.00 for my car alone. Now we're down to $250.00 left. How is that agent going to advertise your home? Where is the money for postcards, open houses, a Brokers' Open (where the agent pays for and serves a meal to other agents)? How can a discount broker serve the best interest of the Seller when he's not making enough to pay his own bills? And keep in mind Realtors don't make a cent if your house doesn't go to settlement. We work on a lot of offers that aren't accepted.
This year, beginning with this fall, we're seeing a very different market. Buyers are getting pickier: they're seeing 10 or 20 houses over a period of weeks before they decide. They want a more perfect house; and if the house isn't in great shape when they see it, they expect the Seller to make it that way after the inspection. You're going to need a professional Realtor - someone who's involved with your transaction from beginning to end. You wouldn't shop for your doctor or dentist or lawyer by price. Why would you hire a Realtor based on his/her commission - especially in this changing market?
So what's in the future for discount brokers? I could be wrong (I was wrong once before) but I think the good and caring Realtors that now work for discount brokers will move on to full-service companies where they can afford to look out for their client's best interests. The other agents - those not so caring - will move on to another career, another trendy profession where they can make some quick money with very little effort.