Discount Brokers vs. Full Service

Good point, discount brokers come and go in this market. I think its harder for them to get started and stay around in a non-bubble market. Our Commission rates are below 5% on almost all sales in this market with the exception of the relo companies. There is not much room to survive. The one guy left give the selling agent an even split and charges the seller a flat fee to do little. He is having a much harder time these days. Many of the listings are pricey and tend not to sell, but he gets a fee noneless. He sells enough because he runs a tight ship and sometimes sells his own listings.

Hi Patrick,

I saw someone "walking on thin ice" and came a running :) Polarizing the issue to discount vs. full service is a cop out, and insults some of the new business models.

Let's broaden the topic to:

How come an agent wants $9,000 when they represent a buyer purchasing a $300,000 house

and $27,000 if they sell a house worth $900,000? 

Where is the $18,000 value diference.

What if buyer number one had the agent running around looking at houses for 5 months for that $9,000

and the second person called and said "I want to buy that $900,000 house" and the agent didin't have to show any homes at all?

Why should the first person pay $9,000 and the second, who needed much less time and attention, pay $27,000?

Those are the questions being asked and not answered.  If you are going to raise the topic, don't boil it down to Full vs. Discount as that is insulting to people's intelligence.

Talk about Buyer Agent Fees and not Listing Agent Fees.

Thanks.

I love the quote from your broker.  Ask him if I can borrow it.

Ardell,

You are correct to break it down into smaller pieces. I am also a big fan of doing away with compensation crossing the "center lines"... As in commercial real estate, let's move to a model wherein each party pays their respective agent. No more co-brokes. Are you game?

Randal,

I don't need to ask - he gives it out freely. Please use it!

You get what you pay for and more sellers are realizing this especially in this market, the discounters are not thriving any more and slowly leaving the market in my area. I see a trend for higher commissions, or better stated, higher co-op pay outs to agents.

Ardell, Most agents in middle America do not sell 300k and 900k that much. In this market you can charge what you want as the price gets higher. Sometimes sales are easy, some times much harder and sometimes not at all. It tends to even out over time. I think Patrick wanted to bring up the trends in the various markets and what was happening. It did not insult me and I have a high credit score.

I love it- I think that is the best quote I have read in a really long time!  I just made it my banner on my cell phone so I don't forget it. Thanks!

To address the other comments, then we as a professional comunity should revert to hourly fees if we are going to break it down like that. 

What I seen, as a general work,  is that is that discount brokers are people that do not have the stills need for real estate.  They are not have the negotiating skills needed for the job.  There advertising is sub-par or what I call PIMS (Put it on the Multi and Pray).  These agents do not know what to do so they just go for price.  If they are good they will stop doing limited representation.  Buying or Selling a home is the biggest investment of your life.  If you where getting brain surgery would you find the cheapest doctor.  Think about it.

The "J" Team

Eric,

Thanks for riding to my rescue! You are correct about the various "ranges" we each work in... Beer's on me when we meet. And I am pretty sure Ardell is full service, too.

Just looking to expand the arguments a bit - like doing away with co-brokes completely.

Jason I feel the same way, these discounters do not have the skill to get a "normal" or above "normal" commission, because if they did then logically they would get it.

When I have gotten a lot of higher than normal commission and agents in my office would ask my boss how do I get that commission %, he simply said "he asked for it"

They are like scrubs in professional sports they would fill the position for a fraction of the pay and not do nearly as good a job and usually fail

I love that quote!

Hey, its a different business model that will have its place if it gives the desired results. I see them come and go because they have thier limits. In this market they tend to do better in certain areas and do not exist in other areas of town. Rarely do I compete with them. Some of the small full service brokers try to compete by offering 4% commissions but tha agents they have are generally not the most successful but get by. You just need to upgrade your presentation when dealing with them. Be inventive.   

I really like that quote.  This  issue of limited service and discount brokerages was discussed at my GRI class today. You get what you pay for.   An interesting point was brought up about our profession:  others groups like appraisers, architects, accountants have their own professional standards to which members must adhere and the standards are created by the professions, but real estate standards are left for government bureaucrats to create and enforce-at least in Oregon.  Perhaps if we had high professional standards and duties, a lot of these outfits would not qualify as members of the profession.  Mind you, I am not talking about money, but level of service provided and misleading advertising that makes the general public think they are getting the same level of service for less.   I have seen ads that say they provide full services for much less and that they will list your house  for a flat fee of about $3000.  They are not saying they will provide full service like another broker for that fee, but the advertising is misleading because it will have bullets on the same page saying they provide full services, advertising, etc., but don't itemize the additional costs of those services.  The general public is not as aware of that as we are and that putting something on the MLS is where it will get coverage for moving and that will mean you have to pay a commission to the selling broker and brokers don't work for free.   My concern is that these folks are devaluing realtors and contributing to a demise/disrespect of the profession in the process. 

I am sorry things are so black and white for you. I only pay my broker $75.00 per transaction and $175.00 per year. In short, I don't pay to keep his lights on or any ridiculous fees. Instead, I give cash back to my clients at closing on their HUD1. You can call me a discount broker if you want, but the fact is, I have a better business arrangement with my broker than most agents. It's really that simple.

Those who want your money will always fill your head with platitudes and Pollyanna to justify their cause, kind of like the very old one you just quoted. The nordstroms to wal-mart comparison is very tired as well. Next are you going to tear a dollar bill into small pieces to justify your commission?

It is a misperception and maybe fatal one, to believe that all realtors who rebate give less than Stellar Service. More real estate professionals are catching on that a new type of Broker has emerged that charges per transaction and small yearly fee.

I say to all the agents complaining about Redfin and Realtors who give cash back, stop crying because it is happening. Get your business arrangements corrected with your brokers and stop paying to keep their lights on.

Everyone has a value for their time. If you want to be known as "The Discount Agent" go ahead. I still believe if you must always advertise your Fee's without explaining ANY of your marketing skills and approaches, something is wrong. It's the used car salesman approach to Real Estate Sales I guess. Right now Agents are working themselves out of jobs. If you want to insure this, continue pumping out 100's of sales at 1.75%. I will focus on my skills of marketing and sell THAT to my clients. I will win with my presentation everytime.

"The Bar is there for a reason.....now rise above it"

I have no problem with agents giving back some or most of their money back at closing, I could care less, if you feel you are not worth the full amount then by all means please give it back. But once a discounter puts a listing on the MLS with a discounter co-op fee then he is doing everyone an injustice, because he knows (but chooses to deny) there are many agents who will not show those listings to their buyers, therefore the discounters are not fulfilling their fiduciary duty and not doing everything possible to sell the home and in fact may be hurting its marketability. A HUGE discount company more or less just got "destroyed" and pushed out of the market where I work because the agents would not show the houses.  

 If you are a discounter and you pay out a "normal" co-op fee and take a heck of a lot less for yourself then by all means please continue. Discounters are not competition in fact I was very disappointed when this company decided to stop selling in our area because now a huge source of my expired listings has now closed shop. Shucks ;)   

There is so much business out there to be found and so many potential listings to get, I have never considered these companies competition, they are not, they are just sort of "there".  

Like I said, if someone had the skill to get a full commission they would.

my last listing sold in 9 days for 100% of the asking price. I reaaly don't need any help on the marketing front. 

Grant - I did not speak ill of the discounters, and only touched fleetingly on the idea that their advertising is not always square with their own business model. To balace that, many of the "full fee" crowd do less marketing than anyone else around, and somehow seem to get by. I'm pretty sure that workload-to-paycheck ratio disturbs the sellers as well. It is not all black and white for me - far from it. I see the shades of gray, and ask only that both ends of the debate be honest with themselves & their consumers. You want this too, yes?

I guess you guys can't read, You can call me a discount broker if you want, but the fact is, I have a better business arrangement with my broker than most agents. It's really that simple. You pay your broker, I give cash back to me clients

Speaking of red-fin. I had a prospect email me after finding me online and told me she wanted to put an offer on this one house, actually she said she saw it but did not want to put an offer in wit the listing agent, she wanted to have an agent represent her.  I had to given back a chunk of my commission but all I was doing was writing up the offer, I did not even have to take her to see the house!!

I pretty much thought for a minute (and had my doubts) and said no problem lets do it. But then a few days later she said "oh can you also show me these other 3 listings in case this offer does not go through"  and of course she wanted me to give back a chunk of my commission to help her with closing costs.

I laughed at her and told her to find another sucker. I saw it coming from a mile away.

Grant you are not a discounter you just give most of your commission back to the buyers at closing and that is fine if you want to do it, to each their own. There are so many buyers out there right now, I am sure no one is worried about losing a potential buyer, so what you do is cool if you have no problem with it no one else should. Just don't give away your services when you sell a house.

This is a topic that keeps coming up every so often and likely will continue to do so.  I am of a simple opinion - do what works for you.  Whatever level of 'service' you offer, whether you take a 'full' commission or rebate, just be honest with your clients....

I have been thinking about business models a lot lately.  I am also full service but am considering also offering a discount model.

Tersa, for what reason?

I love the quote.  I've put it in my bulletin board.  Thanks. 

As for discount vs. full service agents....well, I believe everyone has a choice- agents consumers and brokers.  From my experience, I can't say the professionalism and overall performance of discount brokers/agents in my area have done very well.  I work many expired listings and much of what I come across are sellers who went with the discount broker and are now opting for FULL service with me.  The complaints are usually that the discounter didn't represent their services clearly and didn't work to get the job done.

I think that even though consumers opt for the discount brokerage, many times they still EXPECT many of the full service elements.

ARDELL, I have asked those questions many times (where is the $18,000 difference in value?) and have never gotten a satisfactory response. I don't think there is one. In my market, I can sell a $200,000 house and a $400,000 with equal ease (or difficulty, as the case may be), so why am I worth twice as much to sell a $400,000 one (or worth half as much to sell the $200,000)? There IS no good answer except that... "that's how it's done."

I believe that real estate agents need to be able to answer these types of questions if we want to improve the public's perception of our industry!

I love the quote too!  Looks like some good conversation has begun in regards to pricing and the questions consumers ask.  I sometimes wish I could be paid by the hour.  I think that might stop some people from wasting their agent's time and may help them to consider that time more valuable.

The 18,000 difference with me is experience.  I have been buying and selling real estate for 16 years. That to me is a long time and a lot of hard lessons to learn to put myself on sale.

I'd much rather be known as "the best adviser and advocate a home seller or buyer could have" than "the cheapest agent a home seller or buyer could find" - it's a personal choice.  It's a matter of my being really proud of who I am and what I do.  That is not to say that I never discount, but I don't provide exactly the same services for a 6% listing and a 4% listing (for example) - that is a basic matter of fairness to the consumers who should and do get what they pay for.  

Interesting discussion.  What I want to know is why in the world hasn't the real estate industry worked to bring regulation in the same way the diamond industry has done?  Everybody knows that diamond prices are what they are because that industry regulates itself.  Brokers and resellers work together instead of against each other. 

Why has this not happened in our industry?  Why do we allow commission rates to be slashed by the discount guys and even other agents?  For example, I know an agent who has been around a long time.  She is very established.  She used to charge commission like the rest of us.  Today she doesn't anymore.  Today she works for 4%.  The rest of us work at 6% - in fact that is the standard for my company.  This woman is absolutely killing the industry here.  And not only that, she is killing the upstart agents who cannot afford to work for so little money.  Why does she do this?  Because she's made her millions and doesn't have to charge the higher commission anymore.  I think it is unethical.  If we were self-regulated or had broad standards she wouldn't be able to do this and the industry as a whole would be protected.

I agree that some folks are inclined to go the Wal-Mart method and choose the discount folks, but the reality is that those houses simply aren't going to get shown.  Why?  Because MOST of them don't even end up in our MLS - you have to pay a higher fee for that.  And the ones that do better be ready to pay my 3% side if my client insists on seeing the property.  I think the discount folks do an incredible marketing job, but the general public doesn't understand the superior service they get from full service Realtors.  And they also don't understand that typically full service agents bring higher selling prices for home owners.

I think this is a good discussion.  Active Rain is a great place for dialogue!

Grant, In many States it is illegal to give inducements to buyers or sellers. It is a good law for Louisiana since we are very creative here. How much do you give back? We can all read fairly well and the end result is to have satisfied clients once the transaction. Your model may not work for most agents, I am glad it does and would like to hear more?

Discount brokers are prevelant in my area.  I think we will tend to see this trend grow over the years.  Some people recognize the value and others don't. 

As an agent I find it difficult to manage the transaction on both sides and get paid for one side of the transaction.  That's been my personal experience.

Great point! Awesome quotes. I couldn't agree more. There's room for both. We just need to make sure honesty and integrity are shown through all our efforts no matter where we are on the spectrum of things.

I love all of the info on this post.  Thanks

Jeff

I love the quote too and you really stirred the pot on this one Patrick.  Nice work though, anytime you bring up money...people are bound to go on the defensive as to rationalize what they make and why.   The bottom line in my book, and that is currently the book I'm working on, "Price is only a consideration in the absence of value".  I wish I had come up with that....excellent.

As my Broker says "you get what you pay for" 

Ida you seem like you have your stuff together but I am curious why you are not capable of getting a 6% listing? Surely the answer can't be you don't want 6%.

 I am just curious what brings someone to doing the discount model since I have never needed too but I would like someone to explain why they do.

 Thanks.

Love the quote.  I only offer full service, with some work you will get more money for your client and they end up with more money after paying the full commision, then they would if the client went with a discounter.  Good Debate.

Thank you Ida! I, too, am tired of the line "you get what you pay for". I owned a FULL service, discount real estate company - we charged 4.2% and paid the full buyer agent co-op. I was quite profitable because I kept my overhead down and my sellers got as much, if not more, service than most 6% agents.

Why did I do it? Because I proud to be able to offer great service for a great price. Besides, I hate the whole process of negotiating commission, and when you state your discounted fee up front, there is NO negotiation. So, your relationship with your seller is always a partnership - not one that starts out adversarially by arguing over my fee.

I see it very simple.  I don't find discount brokers to be a threat.  People who go with discount brokers are the same people that think FSBO is a "GREAT IDEA!!".  They have their place.  I have value in my service. When I charge someone a 6-7% comission I will show them why, and I will provide for them. I invest a lot of time, money and effort into making my listins sell.  I provide a high quality, thorough, friendly professional service.

Think about it like this.  You have open heart surgery.  You get the best of the best doctors, your surgery costs $50,000.  You are happy to pay it. Afterall, this Dr has been through years of training and had thousands of surgeries just like yours. Now lets say that Dr. Discounter is willing to do your surgery in the back of a truck for just $5,000.  Which way are you going to go?  I understand that selling a home is not life and death but you get my point.  Many of you drive BMW's over Subaru's for a reason, right? 

Now don't get me wrong. Not all discount brokers are bad, they do have their place is this world, as well as the agents that offer a rebate. But just because some of us think we deserve to be compensated for our services doesn't meen that we are with a bad business model.

Ida........I didn't say that anyone lists in an Underground MLS or anything else. You take my comments to personal.  Like I said, discounters have their place, as well as rebaters. And if that is what your market demands, then that is what you do.  I am glad that you are able to do business in you market and still make a living.

All I was saying is that people who do discount are cutting full pricers down because of what we charge, like we are crooks.  I think my service is worth what I charge.  Im sure you beleive your service is worth what your charge. From the comments I read before you beleive your service is worth more, and it sounds like it is. but your market wont allow you to charge full commission, and that in unfortunate.

Im not cutting down discount brokers.  But as a well known fact Many(not all, but many) do not offer full service. For that matter many who charge full commission unfortunatly dont provide full service. Its a sad truth in this industry. 

By the way-I drive a Ford ......

Ida, 4% of what average sales price? I can offer 4% on a 500k sale and do fine. it does not work as well on a 150k deal. We have a very competitive market and below average prices.

There's ice in Arizona? :) Good discussion here. Whether a listing agent charges 2% or 10% really doesn't matter if they can't get the home sold in an acceptable time and at an acceptable net to the seller.

This topic is one that is near & dear to each of us. We are passionate about it, but let's stay sane, too. Other business models exist, and always will. Laws change. Banks are trying to get into our business. Walmart & Costco are very large threats. The economic fabric of our respective communities is being pulled by many forces. Turn a portion of your energies to making yourself better, rather than worry about the other guys... Go help someone buy a home... If you want to do it for $1, 1%, or 6+%, just be honest with the consumers... They'll know.

Patrick.. you sure got things going.. this is always an interesting debate.. there will always be various bsuiness models to choose from in our business.. buyers and sellers can make a choice of just how much service they want and pay accordingly.. but the truth is that you can't offer the same service as a discount broker to a seller that a fullservice broker can because of the cost involved.. I work in a pricy area and sellers want a lot of bells and whistles and they pay for them.. while we don't see the magic 3%  much we still have to make enough to pay the advertising and the rest of our costs..( which are not broker related expenses) but true business costs per listing...If I don't charge enough for my services to pay my bills and make a little something for me I will be out of business   fast... which may be why we have very few agents in our area who are real discount brokers who particiapate in the MLS.

Thank you Kaye - Your comments are right next to how I feel... It is the consumer we should be paying attention to FIRST, and much less to each other's business plans. I thought this might be a touchy topic, but it is beyond that - it is an obsession for some folks here! They just gotta change how the "others" in the industry are operating... Ain't gonna happen!

Why does anyone care what model each agent or broker decides to offer to the public or to buyers and sellers on an individual basis. 

There are no "standard fees".  There are brokers who require that their agents list or sell for a minimum fee.  But, no one else really gives a fig. 

I believe that these controversies have their origin in the advertising by agents who can't promote themselves or their model without denigrating other agency types or listing or selling models. 

What I charge my buyers is between my buyers and me, based on their needs and the time I believe I will commit to them.  And, don't forget, it's still contingent on a successful settlement and I require that my buyers protect my fee with a BA Agreement. 

This isn't rocket science.  It's agency and what you believe your time is worth. 

I wish agents would get off of this, "discounters don't have the negotiating skill or the experience or the whatever to be able to charge the "normal" commission".  The fact of the matter is that neither do 90% of the traditional agents!  Look at the profiles on your MLS for any zip code and then look and see how many listings each of those agents have.  90% have 1 or fewer listings!   I guess that they just aren't very good negotiators, huh?

Having a discount business model is simply that.  It's an option for the consumer and a model that has to be competed against if you're a traditional agent.  Sometimes you'll win, sometimes you'll lose.  It's called competition and there is no need to throw stones at us discounters.

If you like, please read my post, "Don't Be Afraid Of Discounters". 

By the way, I'm a discounter and I've been in the business for 22 years.  

R.B. "Bob" Mitchell

ValueList Real Estate Services, Inc. 

I personally do not care about discounters nor do I consider them competition. I also do not know how you go about your business and commission split but the typical discounters around here are discounted so much that the co-op fee is so low, the agents are not showing the houses. They are not getting the job done because of the low pay out. If an agent wants to take a discounted listing and pay out 2.5-3% and keep 1-1.5% for himself then by all means. I unlike many agents actually spend money on my listings, a good amount promoting the home. These discounters just sit and pray the house will sell. I do not see how a GOOD agent can function with such low commissions unless they just list the house and do not do anything to try to sell it.

The other problem is the discounters are getting these silly low commission #'s stuck in the head of the sellers so when I meet then and they tell me so so so will do it for X% I have to explain to them why so and so will not do it and the house will not sell. I have been on expired listing appointments where they were only being charged 3% and had to explain how it works and then I get them up to 5-6%.

If you take a discounted listing and pay out a good co-op fee, and work hard and spend money and have no problem taking less than 1/2 of what the buyers agent will end up making then more power to you. If your co-op fee is also discounted then you are just like the rest of them and why we put those agents in a certain category. Then you have these real winners that just charge a few hundred bucks to get the house on the MLS, they make the owners do all the appointments, basically a glorified FSBO, the agent is not doing anything for them. If a FSBO thinks all they need is the MLS then they are foolish, a lot of good agents sell their own listings VERY often and it was not because it was on the MLS

We do not fear discounters, I in fact love them, it is a guaranteed expired listing in my market and a good source of my business for getting new listings. What I do not like is having sellers think a low commission will get the job done when in fact it won't. I have seen a trend in the past year of commission going up to get the job done, NOT discounted, and more and more discounters have been put out of business in my area.

My cousin in NJ is selling his house, he said for only 3.5% and the pay out is 2.5%. So the agent keeps 1%, I find that interesting yet appalling. How much work and money is this agent really going to be spending on promoting this house? If the agent stands to make 1% and I make 2.5-3% who really has the potential to spend more on marketing or who really is going to want too? I think its simple to see.

You really do get what you pay for and in the market where I do most of my work I would say only 15-20% of the listings and probably less are listed for less than a "typical" listing commission. So that does prove that 20% of the agents are doing 80% of the business in real estate because the other 20% are not capable of showing the sellers why they are worth more.

It may work for you and I hope it does, but anyone who pays out a low co-op fee you should be ashamed of themselves since they are misleading their sellers into thinking they can sell the house.