Recently I wrote about my experiences with traditional real estate agents. In a nutshell, if you’re not a first-time buyer and not selling your home, I strongly encourage you to reconsider the need for an agent. But what if you have a house to sell? Are there alternatives to the traditional sales process?
Traditional sales process
If you’ve ever bought or sold a home, you are familiar with how this routine usually works. If you’re selling, you hire an agent who markets your home and charges you 5% to 6% of the purchase price as their commission. Usually your agent splits the commission with the buyer’s agent who represents the purchasers. Still, many people are questioning the value of paying $24,000 on a $400,000 house that sells within a week. Sometimes the agent doesn’t even put up a sign. What are they doing to earn their money in this hot environment?
Discount broker
Most discount brokers work similarly. If you’re selling a home, you go online to find an agent in your area willing to accept a different commission structure. Sometimes it may be a 1% commission or the agent may be willing to accept a flat dollar amount. Remember though – the seller usually pays the buyer’s agent commission; the flat dollar amount or 1% your agent is charging won’t be split. You are still on the hook for 2% to 3% going to the buyer’s agent. Still, 4% on a $400,000 sale would save you $8,000 compared to the normal 6%.
Challenges with a discount broker
If a real estate agent is willing to cut their commission, they will probably also cut their services. You may end up doing much of the legwork that a traditional agent completed in the past.
Less responsive. You may discover that emails and phone calls tend to languish in the ether. You might not receive a call back as quickly as you hoped, especially if the agent has full-commission clients.
Prepping your home. Agents are known for telling clients to remove personal photos and mementos from the home before any showings begin. Agents I’ve worked with have suggested furniture to remove to make a room feel…well, roomier, or other changes to the layout. You may not receive the same level of attention with a discount broker.
Photos. Photos sell your home. You can quickly tell the difference between someone who took photos themselves and a professional photographer. A traditional agent will either take the photos or have a person they use take photos. This is one area where you don’t want to scrimp. Hiring a professional may still make financial sense if you’re saving on the commission.
Inexperienced or less than competent agents. Being a discount broker may be a way for a new agent or one who isn’t as competitive to fill the pipeline with potential sales. While inexperience in and of itself shouldn’t preclude an agent, you should definitely screen agents you interview for past sales information.
Brochures, gifts at closing, etc. Some people love the glossy brochures and folders that they find at an open house. Today though, many people are finding everything they need online. And while the box of chocolates at closing is a nice touch, I could buy a lot of chocolate by saving even 1% in commission.
Should you consider a discount broker?
New buyers. I’ve said this before, and I’ll continue to believe it: unless you have a parent or trusted person who has bought and sold several houses, new buyers can benefit from using a buyer’s agent (especially one focused on inexperienced buyers).
Today’s market. If you’re in an extremely hot market, like today, a traditional agent (and their traditional commission) may not be necessary. Honestly, settling on a list price, posting your house on the listing service, and providing an intermediary between you and the buyers is really all you may need. If houses are going under contract within one week of being listed, a traditional broker may be overkill.
Your willingness to fill in. Are you handy at creating brochures? Have you been watching sales in your neighborhood so you’ll be able to price your home? Is your home already decluttered? If you’re willing to do some of the legwork, using a discount broker may make perfect sense.
How to choose a discount broker
Before you research discount brokers, honestly evaluate what you really need. If you are a high-touch person who would prefer someone else handling everything, a discount broker isn’t for you. If you are happy to do some of the work, define what that means (are you willing to stage your home but wouldn’t know what to do about photos?). That way, when you start talking with agents you can understand how your abilities and their services match up.
Research discount brokers. There are several national discount agencies that either offer a flat percentage commission or a flat fee. Some even provide money back at closing. Research these companies to understand their commission structure. But also search reviews for each; while they may seem the same, you will quickly uncover important differences between them.
Is the difference in commission enough? If you’re on the fence about using a discount broker, try to determine a dollar amount you would need to save to feel more comfortable. For instance, with a $400,000 house, if you paid a 5% total commission, would the $4,000 be worth the extra work you put in? Yes, it might cover movers, but then it might also make your life more difficult too.
Interview agents. With any brokerage, traditional or discount, you should interview at least three agents.
- You may want to review the agent’s sales record, both before and since they have been working with the discount brokerage. Perhaps they have references since they’ve been a discount broker that you could contact.
- Find out any limits on their services. I’ve mentioned many above, but keep the question open-ended and perhaps they will fill in things you hadn’t considered (like whether they will host an open house).
- With any agent, ask the hard question – what happens if this goes off the rails. In other words, if the house isn’t selling or you aren’t communicating effectively, what’s the alternative? Make sure there are deliverables that the agent must provide and also include a date at which you are able to find another agent if you aren’t happy.
No one who has read my post on agents will be surprised that I’m not a big fan of the traditional agent process. While a house is a huge purchase, it’s not the make-or-break scenario many agents describe when you meet with them. I’m convinced the majority of the population can use discount brokers and see the same results as with a traditional broker while saving thousands.
Photo by Rodnae Productions