Whatever Happened to Disount Brokers? by J. Mario Preza

There was a time not long ago when the real estate community was a bit peeved, if not up in arms, about the perceived "unfair" competition of the budding franchises touting their "discount services," and there seemed to be a slew of such companies.

Some of the firms were courting the Internet for their models to work -- less brick and mortar allowed them to charge substantially less for their services than those firms who used traditional models.

Some firms created loss-lead generators by listing properties at a discount fee solely for the purpose of securing buyers who would work with them to find and buy the house that offered these discounter the "full" brokerage they expected and demanded for their services.  Ironically, they never told the homeowner how that program worked.

Other novel ideas were compilations of these and/or a menu of services that allowed the homeowner to pick and choose what item on the menu appealed to them and their budget -- you can select using our signs, but if you want to use our representatives that will cost you "X" dollars more, and so on.

And lastly, there some impressive companies with multiple offices that seemed to be the coming thing -- a threat to the traditional model, full of promise and potential, e.g., a combination of brick and mortar and strong Internet presence.  However, many of these firms are no longer enjoying the appeal they once had, and some are now re-organizing or even changing their model altogether.

Real estate is a funny business, people need our services and would love to be able to bring down the cost of selling a house -- by changing the way agency gets compensated, but swinging the pendulum from one extreme to the other only causes an already anemic business model to teeter on the brink of insolvency.  And size does not matter in this case.  You have major player who have, as of late, declared bankruptcy, or even announced major changes to the way they once envisioned doing business. 

Some of the innovative strategies where to "rebate" the buyers a large portion of the earned commission.  Of course those companies don't make a major announce when that strategy is changing, but changing they are.

Other such novel models made a big to do about paying agents a salary versus a commission for services rendered, these models are now seeing how this just isn't economically viable.

The consumers, on the other hand, still believe that an agent gets paid too much, but they don't factor in all that is required to make any business model work.  In real estate, unless you're selling many houses and earning substantial commissions -- even at a discount, you won't survive for too long.

Plenty of companies have tried to make novel changes to the way the business should work, but unlike the model people are accustomed to with attorneys, where they get paid for services rendered on an hourly basis, and charge a "retainer fee" (trust fund) up front, the consumer only sees the "huge" commission at the end of the transaction, and complains that the agent did little to earn it.

The discount fee model could work, but there would need to be a shift in a tradition that few in the industry or the consuming public, for that matter, are willing or able to entertain.  I have yet to meet a seller agreeable to pay a retainer fee and be charged by the hour -- something that probably would result in a fairer outcome for all concerned, after all, any good agent puts out plenty when they put a house on the market, or show properties without compensation.

There is a place for these models to work, but in order for them to work well and leave a profit margin that makes sense, we all need to re-think these novel approaches to create something that will be acceptable and sustainable.

The pioneers of these changes in the business model of real estate were leading the way to a paradigm shift, but like the early pioneers of the western front here in the U.S., many wound up with arrows in their backs.  Until we settle into a new mindset, the question will remain, whatever happened to the discount brokers? Not just to wonder about them, but to determine how to move into another mindset for both consumers and Realtors alike.  After all, some Realtors are highly sensitive to having "their" commissions touched, but the reality of today's market leaves every conscientious (real estate) business person wondering how are we going to get past this economic challenge, and what can we do to stay competitive and profitable.