“Discount” real estate brokerages were all the rage in the early 2000s when the real estate market was red hot. It didn’t take much effort to sell a home in those days, so discount brokerages could offer much lower listing fees than traditional agents and brokers. It seemed like a viable business model until the bubble burst. After that, it became more difficult to sell real estate and the traditional agents benefitted because they were better equipped and trained to conduct a sale that would require more time and effort. Not many discount brokerages survived the major downturn of the real estate market.
However, the market has definitely heated up a lot in recent years and it’s been a seller’s market for some time now thanks to a perfect storm of low housing inventory and low interest rates. Listings are selling quickly again and thus you are seeing more and more discount brokerages sprout up to take advantage.
Advantages of Discount Brokerages
One of the most successful discount brokerages is Redfin. We will use them as our example throughout this article, though many discount brokerages share similar sales models. First, let’s look at some of the pros associated with Redfin:
- 1.5% Listing Fee – This is opposed to up to 3% traditional brokers may charge
- Reduced Commission for Buyers — Yes the sellers pays buyer agent commission, but if that commission is lower then possibly one can negotiate a lower sales price.
- Same Basic Services – This includes posting the listing on the MLS (Multiple Listing Service, doing online marketing, hosting open houses and preparing property flyers, which are standard services all Realtors should provide.
- 3D Video Home Tour – This is a standard service offered by Redfin.
So basically, you are getting the standard services that any real estate agent will typically provide for a lower listing fee. The 3D video is a nice touch, as well. However, keep in mind the 1.5% only applies to the listing fee. All other closing costs and buyer agent commissions paid by the seller will be the same as any home sale.
Advantages of Traditional Brokerages
The single biggest reason anyone would choose a discount brokerage is because they want to save money. However, with lower cost also comes a potential for lower quality of service and expertise. And if you don’t get the house or sell the house, then the commission didnt matter in the 1st place. Traditional agents will have more training and resources to increase exposure for a property beyond just the “basic” services. This could result in a higher sales price that negates any commission discounts.
Here are some of the pros of working with traditional real estate brokerages (and consequently, cons of discount brokerages):
- Extra Services – Most traditional agents will go beyond just the basic marketing services in order to maximize exposure for the listing. Things like professional photography and great property descriptions can help set your listing apart.
- Expertise – Discount brokers tend to attract newer agents who may not have as much expertise as a traditional agent. A good real estate agent or broker will have strong negotiating skills, be an expert with contracts, have a solid reputation in the marketplace and have access to great resources.
- Contract Flexibility – The sales and commission structure is pretty well locked in with a discount brokerage like Redfin, whereas a traditional broker will offer more flexibility (especially if you are dealing directly with a broker/owner). Commissions, inspection fees, marketing expenses, cleaning/repairs, rebates, home staging and other services can be negotiated. A custom contract can be prepared to help you get the most out of your specific situation.
- Personalized Service – Most discount agents are dealing with a larger quantity of clients at any given time. A traditional agent/broker will be able to provide you with more personalized service and response to your needs.
I recently spoke to my friend, Jeff Grant, who is owner and principal broker of Sand & Sea Investments. They are a traditional real estate brokerage based in San Diego. “Traditional agents want to ‘earn’ their commissions and that goes a long way,” Jeff says. “Whenever I’m going up against a discount agent, I like to say ‘if they are willing to give up their own commission that quickly, imagine what they will do with your money.’”
Making the Right Decisions
Ultimately, you have to decide which route is right for you and your family when it comes time to sell your home. You may save some money on the sales commission with a discount brokerage, but are you really walking away with a better deal when all the final numbers are calculated? There are many reasons why traditional agents and brokers stick around through even the toughest real estate markets and new discount brokerages tend to pop up only when the market is hot.
I’d love to hear about your experiences with local real estate agents and brokerages, including discount brokers. I can also recommend you to reputable local agents that we have worked with at Transparent Mortgage. And of course, I’ll be happy to answer any questions you have about buying a home or refinancing your current home loan if you are not looking to sell anytime soon. Give us a call at (619) 929-0199 or email me at email@example.com!