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What are the Pros & Cons of Discount Brokers vs Standard Brokers?

Pros and Cons?

What are the Pros and Cons between a Discount Broker Vs Standard Real Estate Broker?

Is there a true benefit to using a Discount Broker vs a Standard Real Estate Broker?

In this market is it possible to be a Discount Broker and survive?

I want to hear from all including the Discount Brokers.

Posted by Julio Anchante - RE/MAX Gold on 05/09/2007 01:30 AM

Comments (35)

pros, cons, discount, brokers, agents, realtors, homes, for, sale, real estate, home, house, buy, sell

Post is included in group: Realtors®

35 Comments on What are the Pros & Cons of Discount Brokers vs Standard Brokers?

MAY

2007

What I have seen is discount brokers are agents that could not make it and only thing they can show to offer is to be cheap. Every discount broker I have seen that does a good job stops being a discount broker. We have gotten are buyer tens of thousands of dollars off from discount brokers. I understand why so many agents get discount their service. We could not do all the advertising, send the time and spend the time need to get our clients the most amount of money in their pocket at a discount price.

I'm curious too Julio as to what a discount broker is compared to a run of the mill regular broker. I mean, after all, if I can have 'discount' pointed out in my title....it may mean more biz for me.

Hi,

I know that this is a little off the subject, but, I was door knocking the other day and I ended up knocking on the door of a discount broker. He was rude and when I asked when he was planning on moving, he handed me his own card and said to "ask this guy". Then, he proceeded to close the door.

I feel sorry for them if they are all like that. You know "miserable" and have to treat other agents like that.

Kim

I don't think all are the same. You just knock the door of a unhappy agent.

Varies. Really need to go on a case by case basis. Some Realtors are good, some are not. They fall into both categories...

I think it's all a matter of preference and what the sellers' needs are. There will always be people who are trying to save a buck!

We don't have any limited service agencies working directly in our area, so I am curious as to what the language in the listing agreement is that limits the service. We do not have any limited agency listings available to see on our zzip forms either so it would be interesting if a limited agent would post the service features for the rest of us to better understand what is being offered by this type of agency. I would think it would be of benefit to all to see the difference. It could help all of us understand it better. There is a group on AR for Assist to Sell, but has limited posting as well...LOL

Thank you for the comments.

One offers price, and the other service and results. It's the difference between passive marketing, and active marketing.

MAY

2007

We have them here and they have been around for years. I see agents come and go from them just like full service companies. I think it is harder for them to survive in a tough market like this but on the other hand a discount broker can make the difference in a seller not making money and maybe breaking even. I was looking at Redfin and the way they do listings is call us, look the prices in your area (not sure where those come from, put up a sign, lockbox, put in MLS, make your own flyers, house sells for only 3k but doesn't mention the buyers agents commission.

MAY

2007

I suspect that REALTORS most always feel the same way on the issue of discount brokerages. I am not going to defend them, as they do not need me to do that. I still don't like them much but I also think it is more of a visceral reaction.

Have you ever purchased a discounted product at Target, K-mart, Wallmart, etc. This was the argument that was used on me to convince me that less is better. The above scenario is about products. Products that are manufactured, marked up specifically for the that retailer(discounter in this case). That is the business they are in.

With real estate, the discount brokerages believe they are most successful selling their professional service as though it was a product and hopefully appeal to the savings instinct that most people want to enjoy ( if they can get that). Fair enough. I believe a man is worth what he earns. So if these companies get less , that is what they are worth. While real estate may not be rocket science, it does ( at least it should) require a certain mastery over the complexities of the industry. I would most enjoy seeing how these brokerages interpret that and what they require or even inspire in their sales force that speaks to the mastery that in my belief system is part of the fiduciary a licensee has to a principle. If the consumers could also embrace the concept that you get what you pay for and understand the difference then that would be fine with me.

Thank you William for your comment it all comes down to what you are worth and the service you will receive.

MAY

2007

I believe that some of us feel threatened by discount brokers. I for one was for a brief moment. Then I started considering their business model. How do discount brokerages make money? Certainly they cannot make money if they only take one listing a month. That would put them out of business quickly. It then forces me to believe you have to do business in bulk, in order to make money to sustain the business. It may be true they make money from some of the buyers leads, but as we all know who are successful in this business, listings drive the business. It then follows that they need many listings. However, as I have observed in my market there are more and more discount brokerages, if that is the case I welcome them, as a matter of fact I hope they bring a hundred more into the market. Why? Because people do not flock to them as most people believe. In our market they have maybe a 10% share, which has not grown since their addition to our market. So the more discount brokerages there are, the more that 10% must be shared. Eventually there is not enough to go around. Since these businesses are trying to make money, (because I don't believe they are doing real estate for philanthropy reasons) and have certain margins they must maintain to be profitable, much less make a living, the less likely they can continue to run a profitable business. Personally and anecdotally, I have not found them to be my main competition, I still find that my competition is the full service broker, who invests their personal time, and money in marketing, and incredible customer service, consistent regular communication, and expert problem solving when situations can occur. The people who seem to choose a discount broker, are not interested in those factors, specifically from the customer service end, otherwise the discount broker would be forced to provide it, which does not fit neatly within their model. While I am sure there are those lurkers, who would say, "not all discount brokerages are the same", that's fine but what does the consumer think? That is who I care about, and if it is a question of commission then to the consumer, they all start to look pretty similar, with a similar reputation of low customer service. You only have one time to make a first impression, so if your first impression is low commission, and low customer service, they have made that very clear to the consumer.

Linda

JUN

2007

'Would have loved to hear your perspective on these questions, and not just your questions. How about it?

JUN

2007

Ran into a discount broker today that had never seen the house, gave the sign to the seller to put up, by appointment only, had the seller email photos of the home. It's been on the market for 95 days with 2 buyers only that have seen it.

Julio - One thing for sure, in a buyer's market, the discounted fee or flat fee brokers have a much more difficult task in front of them. The demand for their listings is low and they usually do not offer buyer representation -- they are just MLS-listed FSBO's without the marketing muscle of a large RE brokerage behind them.

This means that discount/flat fee brokerages are up against it right now -- many will go out of business. I've heard it said like this;

"Business goes where it is wanted, it stays where it is well treated. Price may offer and inducement, but quality and service offer the reason".

If you have a high-ticket item to sell, when you enlist a full-service Real Estate marketing powerhouse, you've got your best chance at obtaining an offer, at the highest price the market will bare. If your marketing reaches a smaller audience, it just makes sense that there won't be as much interest in your offering and the price must be reduced to induce.

Seller's who need a discounted price have not usually lived in their homes long enough to build up the free equity that comes from inflation. Stay in a home for 3 or 4 years and you can usually pay all sales costs of a full-service broker. And buyer's who buy these places, without a REALTOR had better be pretty savvy at sizing up market values. They can't expect the appraiser to keep them from over-paying for a house.

Kay Van Kampen - You are a savvy broker/agent and I'll bet people enjoy working with you...

JUN

2007

I'm back a day or 2 later, with another comment - Discount brokers do make traditional realtors look good, and they don't even know it! You know, traditional agents can discount if they choose, but discount agents can't increase by their very nature. lol.

JUN

2007

Discount brokers, Boy do they leave a bad taste in my mouth. On the deals that I have done, that has involved a discount broker; I have always been the buying agent. I have come to learn that I become the one responsible for making sure that the paperwork is done, and not just done, but done on time. From my experience they almost never help in getting the paperwork done, and if they do I had to hit them with a notice to perform.

On one occasion I have actually had the seller call me, and say thank you for getting the deal done.

Doing a listing presentation against a discount broker, boy it makes my job tougher, but it does help make me a better Realtor.

I can do without them, but they are part of the business.

JUN

2007

Linda, your response was superb (since it reflects my own thinking on the subject)! There is a tendency to think that all fee for service brokers are not Realtors--that isn't the case; so we must remember the code of ethics in our discussion. The beauty of this business is that there is room for many different business models. The market will determine which models endure.

JUN

2007

I think Jim summed it up the best. Price vs service and results. We can't blame folks for trying to save money, we all do that but...what we have to do is show them what they will get.

JUN

2007

Discount brokers, discount service. You get what you pay for.

JUN

2007

Don't judge all discounters by the actions (or inactions) of some. Assist-2-Sell is a full service brokerage; we do all the same things that the traditional companies do, the only difference being the comission. We work for a flat fee rather than a percentage. For the flat fee (each office is independantly owned and operated, so check with your local office for fee structures), we show the home, advertise, do the contracts, work with buyers, qualify buyers, handle inspections, negotiate, etc..etc... right up to the closing (and attend that as well). We only get the flat fee. Now in a business structure such as this, we may not make a lot per comission, but we make it up in the amount of comissions we take in. Our business is volume-based.

If the client decides to go into the MLS, we offer out the same as tradtiional offices offer in the same marketplace. For example, in our market here, 2.5% is acceptable for a buyers agent (5% listings on average). we offer out the same 2.5% for our co-brokers should their client choose to purchase one of our listings. The thinking here is that we don't want to discourage other people from showing our lsitings, so we offer out the same that everyone else does. If the house sells in-house, the seller saves the 2.5% because there is no outside company to pay at that point. They only pay the flat fee. Overall, even if the house sells through the MLS, the seller saves thousands of dollars- it's a win-win situation for all involved.

As for the discounters not surviving a down market, it's quite the opposite. People have enjoyed unprecedented returns on their investments with their properties for the past few years. Now that they're realizing that the property may not be what it used to be worth in the past market, most people are looking to save as much as they can and rather than spend a traditional percentage (5-6%? or more??), they can have the same service for a fraction of the cost. It makes perfectly good sense to go with the discounter in this current market. Maximize your gain on equity without comprimising service.

Furthermore, for those who put a blanket statement of "you get what you pay for", you are misinformed about the different business structures out there such as ours. I'm sure there are companies out there that reflect such statements as being the truth, but be careful not to group us all in with that.

Additionally, some of the same agents who subscribe to that way of thinking also state that they would never show our listings- unfortunately for them, buyers care not who they buy the house from, they just want to see it. If the agent that a buyer has been working with is unwilling or unable to show them a property that they want to see, it has been our experience that the first thing a buyer does is call the number right on the lawnsign. Our own agents have no problem working with those buyers either... such is the nature of the business. The traditional agents in our area have "wised up" to this though and now everyone "plays nice" together, as it should be :)

Remember people, we're all on the same team-- there's plenty of business out there for everyone. People are always afraid of change when it happens, but don't knock the competition without knowing the entire story accurately.

Good luck!!

-Mike Sinton, Broker/Owner

Assist-2-Sell Buyers & Sellers Edge

Hamilton, NJ

www.WeSellCentralNJ.com

JUN

2007

We have an interesting relationship with a discount broker. He charges a flat fee to put a listing in the MLS. When the contract is about to expire, if the house has not sold, he tells the people that he will refund their money if they go with his "preferred" full service realtor. He refers the seller to us. We then pay him a 25% referral fee so he is actually making more money from the referral than the flat fee he charges. We are happy to take the referrals.

Diane Lynch

JUN

2007

That seems like a win-win Diane.

Before I got into the real estate business, I too used a discounted program. I did not see or talk with the listing agent after signing the listing agreement. Eventually, when my property did sell, I pretty much negotiated the deal with the selling agent. If I knew then what I know now. I can't even say that I got what I paid for!

I believe in the principle of getting what you pay for. I wont say that "cheap" is definitely not good. But if you were giving a limited amount of money for the broker to work for you (if you were a seller), I do believe you would get a limited service.

JUL

2007

It all comes down to you get what you pay for. I would not be a discounted broker myself. I think you could easily get yourself in a legal mess if you are offering discounted services and something blows up with the deal. I am sure there is a need for it these days with people buying houses with no money down and wanting to sell in a year. Thats about the only choice is deal with a discount broker. Unless they have a bunch of money pay out of pocket.

A Seller's decision whether or not to work with a discount or flat fee broker has potential repercussions and REALTORS should consider referring the question to an attorney. All they need to ask is "what will you do when it is time to sell your property". Most lawyers will want the extra protection provided by the Broker's E&O insurance ... something most REALTORS aren't comfortable bringing up with prospects.

My opinion is that discount brokers have a natural market, everyone wants cheaper but reality sets in when nothing happens and the home is on the market for extended periods. I think this current market will also work to our advantage in the long term. Personally I think discounters can't market the property as would a full service company because the go in knowing they will get less money. I also think many agents don't show discount brokers property as often because of the mind set.

As a buyers agent I have to show every property I feel may fit my clients needs but I really don't get excited about doing so.

OCT

2007

interesting comments on your blog. Thank you

FEB

2008

Let's look at another angle. First, do I want to deal with the individual that will offer up their most valuable asset to someone that save him a few bucks? What happens when the building inspection comes in and repairs are requested? Will this be battle #2? What about municipal inspections? Will I have to fight to get him to do the repairs so occupancy can be conveyed? Will they fight every charge the escrow agent has listed? What about getting the home market ready?

All I see is a headache that does not want to do or pay for anything. Maybe they just don't have the cash to be able to afford to sell their home at all.

Other times, I believe they chose the cheapest route, because we have failed. Failed to educate the consumer on the reality of our fees and exactly how they get dispursed, which in turn saves them money, because the home sells quicker, for more money and less time on the market.

JUN

2008

Well, I for one am frustrated that the discount brokers take away past clients that are just trying to save a buck! What about loyalty, appreciation for the great house we helped them purchase a few years ago and for the professionalism needed in real estate transactions? This stupid real estate market has been driving me nuts. Great past clients selling on their own when times were hot, listing with discount brokerages, etc. It makes me wonder where the old fashioned values have gone. I quit working with "Investors" that wanted to buy to flip homes. They used me for the knowledge and information to purchase a great deal and help guide them on improvements, then turn around and list with some stranger that doesn't deserve their business!

After 16 years in this business you would think that I would be used to the crappy things that happen but I just can't seem to rally from feeling disappointed.

Thanks for letting me vent!

D'arcy

AUG

2008

HI my name is Joshua and my partner and I have are the direct connection to two banks. When you are dealing with banks and not pre-done tapes a direct connection takes the place of the seller's mandate. If you are looking for a real connection direct to the institution please give me an e-mail. Our protocol is as simple as it gets

1) sign NCND

2) LOI made directly to the bank , NOT ME! , proof of funds ie. bank statement

3) phone call from the bank

Joshua Loeb

J Loeb Inc.

josh@nwlsusa.com

SEP

2008

Am I the only one who has not the slightest clue what Joshua Loeb is trying to say? What's he selling?

OCT

2008

Great questions and comments (most)....

It seems that most traditional agents involved in this string are negative toward the discounted model. I don't have an opinion probably because I have not been threatened in the past because the area which I focus on has few active discount brokers-in fact in recent years Help-U-Sale left the area....however, it seems logical that as margins shrink home sellers will give more thought out of necessity to utilizing the discounted broker option.

For those of you who have had experience with this group of discounters I have a question for you. What strategies/comments/facts/figures have you used (to defend your traditional model) that have been successful when working with buyers/sellers when asked about the discounted model?

Thanks and great luck,

Chris DeNike

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