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Is your broker watching out for you?? Things you should know before you hire a discount broker

Is your discount broker watching out for you??

What services will you be doing without, that you just don't know yet?

Today I came across a listing in Somerset that I've never paid much attention to. It's been listed for sale for nine months, dropped in price by 75k but still erroneously listed about $50k above market value. In the marketing remarks it says: "Seller to offer buyer up to $30,000 cash bonus at closing". Dining Room

My first instinct was to ask, "What does it matter if the seller will offer 30k in cash bonus if potential buyers are searching the market for homes $30k less? What the seller has done is artificially inflate the price of his home above the range that potential buyers would look for it in.

I thought about calling the listing agent and passing along my suggestion as an act of realtor cameraderie, when I noticed the listing office: a discount brokerage to whom you pay $500 to list your property for up to a year. This was not the sort of brokerage that offered any real representation to the seller.

In fact, it was unlikely they had ever counseled the seller on either price or strategy. So why did the seller choose a discount broker that as of today has cost him more in mortgage payments since listing (and that he could have saved) than he would have paid out to a qualified area specialist for proper representation?

The answer lies in the prejudice in percieved value.

Let's consider another market:

The real difference between international real estate representation and US real estate representation lies in the perceived value of the agent, not in the difference between the services rendered.

This should make us wonder why we devalue our real estate experts in the US and why we think a discount broker is just as good.

When visiting my cousin in Lake Como, my husband and I had the opportunity to enjoy the company of a local agent. In Italy, the agent explained, you pay your agent up front. You pay fees to them to search for a house for you, and you continue to pay them cash out while they negotiate the deal and secure your property. Likewise, you pay them to find a buyer should you be selling.

In the US, not only do we not pay our agents upfront, we treat them like they are trying to rip us off. "You want us to pay how much? And what for?"

...the prejudice in perceived value...

That's exactly why to some there is no perceived difference between a discount broker and a highly experienced market specialist.

Some questions to consider:

Bedroom

Will my discount broker consult me on market pricing and strategy backed up by qualified and ample research?

How qualified is my discount broker (if at all) on the particulars of my neighborhood market? (Consider that two blocks out from your home could be the end of your neighborhood and the start of another. How intimately does the discount broker know neighborhood boundaries and values?

Is my discount broker out in the field selling every day? Or do they sit behind a desk?

If I choose my discount broker because they give me the commission savings I want (meaning, they don't negotiate with me at all), how can I know they're any good negotiating the price I want?

How much money and time am I prepared to lose (think mortgage payments, lost opportunities on contingent purchases, etc)

Do I believe a worker is entitled to fair pay for their work? Am I being realistic in what I hope to get for what I pay?

Is there anyone on my side (as buyer or seller) watching out for me that's not scared to give it to me how it is (speak the truth to me, even if I'm not excited to hear it) to help me sell my home?

Posted by Sara Washburn on 05/20/2008 10:13 PM

Comments (38)

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Originally posted at: Better Seattle: Is your broker watching out for you?? Things you should know before you hire a discount broker

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38 Comments on Is your broker watching out for you?? Things you should know before you hire a discount broker

MAY

2008

I recently interviewed for a listing that ultimately went to a discount brokerage. The list price was $75,000 - just over what I had valued the home. The Seller's reasoning was the "savings" in commission. They thought my percentage was more than the flat fees, but actually it was less. They perceived that the $495, etc., etc., etc. from the ala carte service menu was less than the single amount my listing commission would have been. They ended up "saving" the whole amount because it never sold....

Hi Anthony! That's really unfortunate... Sellers often aren't aware that buyers aren't as comfortable dealing with discount brokers. Some discount brokers won't handle any of the negotiations. I had a buyer who intentionally overlooked a property we viewed even though it was on par for what she wanted because the seller used a discounter and would be negotiating the contract himself. She opted for another property instead.

Sara, I had a neighbor that sold through a discounter. His property was tied up for 7 months under contract with a contingency... and there was no kick-out clause. He had moved out of state and was waiting to buy another house... while making a house payment and renting another home. The contingent buyer finally agreed to cancel the deal... got their earnest money back, and left him to keep selling the house.

Nevermind the $10,000 in house payments. Nevermind the lost opportunity to buy a house in Charlotte for 6 months. Nevermind the selling bonus he paid out. Nevermind that he had to really cut the price of the house after it was "on the market" for months, even though it was unavailable.

He "saved" a couple thousand dollars.

A cash bonus at closing? Sounds like trouble to me. Lenders would balk at that.

Just keep doing a great job, and if you are a great Realtor, you will always add value to to the lives of your customers and keep making money. Whenever people fear change or competition, you have to really take a look at yourself and wonder why. Adapt and evolve!

Sounds a little gimmicky -- your consistent professionalism will shine through!

MAY

2008

Good post. And you are right in your comment that sellers are not always aware that buyers are not always happy to end up dealing with a discount broker and that may actually keep them from looking at a home.

That seller would have been better with a lower price, doing a buydown on the buyers loan and hiring a real professional Realtor. Go figure.

Hi Lane,

That sounds like a true nightmare!!! The sad truth is that the unfortunate soul in that situation likely wrote it off as a nightmare real estate sales experience, possibly without realizing that a market specialist could have provided a completely different experience. Often, if a real estate agent does a magnificent job, they make it look as easy as cooking brownies out of a box.

Hi Wayne, yes, lenders would balk at that! Especially now. A market specialist would catch that too, and counsel their seller otherwise. But honestly, part of me feels real bad for the seller. He must have no idea why his house isn't seling, and it's not because it isn't pretty. Sellers who opt for using brokers who merely list the property on the mls are often doing all they can, so to speak, to be the "real estate agent". Really, it's a do-it-yourself-er, and their tenacity is to be admired. But all the little bloops along the way can add up to a lot of money and time lost...

I would even call the seller and consult him on it... but I can't. I can't contact a seller listed with another real estate broker, as it constitutes solicitation, and qualify me for an mls violation...

Hi guest poster, sorry I can't address you by name... Your support is inspiring!

Juliana, I'm so opposed to gimmicky!! Blame me for being a part of that younger generation that really values authenticity, but especially in real estate, I believe in honest disclosure and being up front with clients about what's going on. Certainly if I can't do something for a client, I'll tell them so and not mislead them into believing something that isn't true. For agent representation that is less than agent representation, discount brokers should disclose how they're not going to be there for their clients. I fear the day when a home seller finally sues, raising the issue that the discount broker they paid did not honor their fiduciary duties to the seller. (And all agents have fiduciary duties, whether or not we perform them).

Thanks for your kind words!

Hi Bob and Carolin, my particular buyer actually viewed the property, and without any prodding from me said she didn't want to negotiate with the seller directly.. and even I was shocked, partly because that was my first experience with a discount broker listing and also because I thought this listing was preferable to the one she chose... Her primary position was that if we negotiated with a seller directly, he wouldn't be willing to negotiate as much (which can be true, as FSBOs show, as sellers can be overcommitted and less than objective in assessing value).

Pam, I don' know what's going to happen when the seller's listing expires. Normally, I would pursue any listings in my neighborhood, but another part of me wonders if the current strategy employed betrays greater stubbornness...

Hi Sarah, we wrote an offer 4 weeks ago on a home by a discount broker. Basically a FSBO, it is still showing active in the MLS. I don't understand why they won't follow the rules. It needs to be contingent. The FSBO told us she put it in the mls to get more activity, fine, but you did, it is sold now remove it. Please....

Consumers need to carefully examine the services they are getting in today's market. When houses were flying off the market faster they could be listed with a limited service brokerage without any problems. Now when marketing and negotation skills are paramount to a successful sale sellers need to carefully look at price to sales ratios, marketing plans and so much more before they select an agent to represent them.

Sarah,

Inflating prices could be considered fraud...at least in the mortgage business. I've seen this before. It makes no sense. I always say you get what you pay for. If you buy a box of pop tarts by Kellogg's...you get two whole pop tarts and they are backed by the company...if you by the no name brand you get crumbled pieces in the pouch. My wife can attest to that. I have no problem with different business models if they give the consumer the same professional attention as we do in full service. I don't like when they try to deceive the public into thinking they are offering a better deal when they really aren't

Be careful with articles like these. The DOJ is watching, NAR is watching. Can you say Ethics?

There will unfortunately, always be sellers that believe that real estate services really do "go on sale" and the blue light specials offered by discounters will eventually get you a sale with having spent less on commission....Time is money....it's property taxes, days on market, utilities, price reductions. If sellers who hired disounters would quiz them about days on market an list to sale ratios, 'wonder how long they would stay in business.

This is an excellent post and very informative. I have noticed in my area that the discounters seem to be disappearing..in this changed market. Sellers and Buyers want/need to be represented..that is a good thing. Angelica Blatt

You make some great points Sara. I myself have not had to deal with a discount broker yet, and I hope I don't have to. But, it is inevitable it will happen so I just have to be prepared and be patient. I wish you the best. Just keep doing your job right and good things will only come of it.

excellent points all around. Our fee needs to be explained in terms of the value we bring to the client, rather than simply as a commodity. I have found I get few commission objections if I do a proper presentation and explanation of what I know, and how that helps in what I do for them

Hi Missy! You could contact the mls... I've seen this before, but not with a discount broker.

Neal, my biggest concern is one of fiduciary duty. You can't really watch out for your clients as an agent if the fee charged merely pays for a listing in the mls. I've also blogged before about the mls as an industry supported service, and without the industry (the agents) there wouldn't be an mls for sellers to list their house in. It's kind of like the subway. Without subway operators, the subway wouldn't run, so whether or not you want to support operators in getting their pay, the service wouldn't be there without them.

Hi guest poster! You didn't leave your name but I wanted to make sure to respond to your post..

"The DOJ is watching, NAR is watching. Can you say ethics?" I wanted to ask what you meant by these, how did you feel I was crossing the line?

By all means, I am not in any way advocating boycotting discounters, neither am I invalidating discounting as a strategy or tool in a competitive real estate market. I really do believe that all commissions are negotiable, and I myself negotiate the commission based on a variety of factors, such as list price, property location, distance to my market area, difficulty of the listing, marketing involved, etc.

Additionally, whether I charge more or less for a listing, I feel great responsibility to watch out for my seller, and to consult them appropriately. Otherwise, I cross my own core values that for me real estate is not just a profession to make money in, it's a profession where I'm going to care about people. The bottom line for me is not money at all.

I would respond regarding ethics that caring about the consumer, caring that they are counseled right, that they are protected and advocated for is exactly what being a real estate agent is about. What have we morphed "ethics" in the industry to mean? "Ethics" is not the same thing as not stepping on any toes. Not stepping on toes is people pleasing. Ethics is caring that the consumer receives the representation they're entitled to, by anyone that bears the title of real estate agent (that is after all, how our duties are defined by the state government...) The license of agent connotes market specialty, and the purpose of our work should be to help the consumer with our expertise...

Hi Cindy! The recent boom years were a nightmare... I think they contributed heavily to the disregard shown agents these days. So many people entered the industry to make a quick buck, and I think for some it became about making money instead of facilitating a sale for the client. When I lived in SoCal, I sensed an even greater disregard than sometimes I encounter in the NW. I think speculative markets lure the money greedy... it's really unfortunate for the consumer.

Hi Sally and David! Sellers don't know to quiz listing agents.. and a person functioning on the presupposition that agents aren't worth their pay are likely to be driven in their decision-making by that bias, crossing off other qualified agents from the get-go.

Hi Angelica,

I don't really know what's going on with discounters in my market (and discounters can be described broadly, depending) but strangely enough, time trends do tend to show that full service/full representation brokers continue to be in demand and valued for the services they offer.

Joshua and Kathy,

I've actually not represented a buyer in a transaction buying from a discount broker either, but I have facilitated purchases directly with the seller (FBSO scenarios).

For the sellers, there's a great deal of fear to contend with. Nobody wants to be taken advantage of, and just like when playing monopoly, they don't always know what's a fair deal and what's not. (I've had some strange experiences playing monopoly. The classic case of fear of making the wrong decision shows its head when the other player can accept either the offer you've made, or accept the reverse. In a similar way I believe sellers freeze or get defensive--they are scared of making the wrong decision.) I believe that some discount broker listings are just like working directly with the seller, if the seller does their own negotiating. I'm not necessarily wary of them, because what I really care about is finding that perfect home for the buyer, just as I would pursue FBSOs and even properties not listed on the market to get the right home for my client. (I do incorporate a commission into the contract if it's a limited listing that doesn't offer compensation or a FSBO).

Hi Sean,

I incoporate a value analysis in my listing presentations, too! Very important, likely the single most important piece of information we can share with our sellers in helping them make their decisions. After all, if they are going to be paying us, they need to know what for, and I want them to be excited about it!

You might want to go to http://www.realestatehelps.info/professional_help/Discount%20Commission.pdf and see if it's any help on the subject.

With regard to consumers using discount brokerages- two things- 1. some folks insist on learning the hard way. 2. You can't teach common sense.

I have seen some U.S. agents collect a retainer fee before working with buyers. This fee is kept should the buyer not close and is reimbursed should the buyer close. Makes sense in hot markets and when a particular agent is in high demand and a buyer is not willing to work with an assistant.

Sara great post, I have posted on this topic before also, I have a friend who recently needs to sell his home in like 2 weeks and it's in a tough neighborhood and has issues and he was either thinking of going FSBO to save commission or having his father who is new and has never sold a home list it. Our market time is about 3 months.

People can be so focused on the garbage media message of paying less, I tell people commission isn't your issue, in this competitive market you better make sure you hire the best agent or your home won't sell at all.

Interesting blog. Thanks.

Kevin

Wow, Thanks Gerald! It's well written and really communicates the heart of the message. :)

Hi Robert, I've heard of US agents charging an upfront fee, too. I've never done it myself, but have thought about it (although not in this market!)

Ross, now is a crushing time for agents, media-wise. I'm trusting that in so many years the prejudice will blow over.. For years, it was something many people wanted, like fresh organic vegetables. Now we're in the "microwave food" era of real estate. But I'm sure the tide will turn, just as in the food industry people are discovering that pesticides and growth hormones and preservatives are actually not so good for you...

I have faith that our society's move toward greater authenticity will eventually pierce the "bad agent" myth. I hope you're able to list his house!

I notice that some buyers sense a certain desperation on the part of the seller when going thru a discount broker.

Great Post. Discount Brokers in are market place are starting to close up shop...

Bill, mm.. I hadn't thought of that. That happens sometimes with FBSOs too.. Good representation provides a cloak of protective dipolmacy. Especially in the NW, clients really value their privacy, and many of my clients are not eager to meet the buyers or sellers of their property.

On another note, for all real estate agents (at least locally) I wanted to add that in Washington state, under the real estate agency law, agents are required to exercise reasonable care and skill and to act honestly and in good faith. Not showing a home merely because it is a discount broker listing, or telling a buyer to not consider it is a violation of the duty of reasonable care. So it's important that as agents (in Washington) that we honor the needs of our clients, even if it means showing them properties we are less than excited about.

Sara: I guess there is more truth in "you get what you pay for". Sometimes in our effort to save a few bucks it costs us thousands. Sellers never seem to factor in the "carrying cost" of their property vs the dollars they think they are saving in commission. In a slow real estate market it's especially importanta to price correctly and market the property. You have to ask yourself "would you shop around for a discount brain surgeon?" Hopefully this too shall pass, if you want quality representation and top dollar for your property you have to pay for it.

Patti - Capital Line Funding Group - CA

Sara...

May I just say you look Lovely today? :)

P.S. I'm watching over the Broker :)

TLW...ROAR!

It seems to me the real issue here is over pricing homes to begin with. I have had agents and broker's call me to ask "how much wiggle room does the listing price have?" It always makes me laugh a good buyer's agent should already know if a listing is overpriced and advise there client of the fair market price.

The norm seems to be take the listing at any price and tell prospective buyers to make an offer.

This practice is very distructive to the whole industry. Over promising and under delivering is the reason our services are being discounted. Buyers and sellers cannot distingush the difference between a real estate professional and a non professional.

Sellers interview (or get 3 estimates) and go with the one that promises the highest price with the lowest commission.

It's frustrating but a professional keeps fighting the good fight.

Hi Sara - Just today I tried to set up a showing on a house for a client of mine. I called the listing agency's phone number, had to push a button if I was an agent, had to push another button if I was licensed in my state (what??), another button if I wanted to schedule a showing, blah, blah. blah. Then when I FINALLY got to the point where the recording gave me the showing info, I was directed to call the seller direct. Called the seller direct, and got another recording there. That house could only be shown a couple of hours on a few days a week, and not at all on other days. Give me a break!

I then looked up online to see just what kind of company the listing agency is - guess what? They get a whole $495.00 to insert the listing into the MLS, and that's it. If we were to write an offer on that listing, we would be negotiating the offer directly with the seller. What on earth would posess a seller to want to work like that? No one working with them, looking out for their best interest, etc. Do they seriously think that was worth that $495 fee to go it alone? A good buyer's agent could chew up sellers who elect to go that route....

Ann

Real good post. It's keeping me thinking...

There has to be some RESPA violation in that. Stay clear away from it.

Sara, this is an excellent post. Sorry I can't add much more to the conversation because everyone pretty much "said it all" before me. I will say that your discussion with an Italian broker was amazing. I didn't know that's how things were done there!

Sara - This was excellent, and something many should rad and give careful consideration to before making a decision.

Jeff

MAY

2008

Sara- People are free to choose to work with whomever they want. There is nothing we can do about the discount brokerages and the clients that choose to use them. That being said the people who use a particular brokerage (no matter what brokerage full sevice or the lowsest of fees) need to realize that there is a image associated with their choice. How that image (branding) impacts potential buyers or sellers is of great importance. One does not go to Wallmart to buy Haute Couture. One goes to Wallmart to buy based on price. The problem I see is that people who are trying to save a few dollars by going with a flat fee or lower commission are often not aware that the level of service provided can be less than expected thus impacting the time on market or final selling price. They think that we all do the same exact things to market homes. We need to find better ways to inform the potential client of our value we bring to the transaction.

Best,

Scott

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