A real estate agent having a meeting with a client

Traditional Vs. Discount Real Estate Brokers: The Battle Rages On

There is a war raging between full-on traditional brokerages and discount real estate brokerages. As the housing market continues to stabilize and more people—who are finally nearing or exceeding the break-even point on their mortgages—decide to sell, more and more discount real estate brokers are flooding the market. For discount brokers, the current market conditions create an ideal business model. But, if you are a traditional agent, what does an influx of discount real estate brokers mean for you and your business? Here’s what you need to know.

A cheaper alternative is hard for clients to pass up

Many of your clients believe that the standard 6% commission is way too high. In rushes a discount broker, promising a lower commission—sometimes as little as 1%—and clients go running. Think about it: If a person sells a house for $300,000, they can pay as little as $3000 to a discount broker (or at least that is what they are being told). On the other hand, they will cough up as much as $18,000 if they choose a traditional broker.

When sellers are nearing a break-even point on their mortgage—or they are risking having to short sell—the idea of keeping several thousand dollars is very enticing.

Additionally, clients don’t realize that they can actually negotiate rates with their agents or brokers. And they may not know that the 6% often pays commissions to multiple people, including the listing agent. So they often jump to work with discount real estate brokers without fully understanding what they are getting themselves into.

“Cheaper” sometimes just means “cheap”

Ask a traditional broker about their high commissions, and they will jump to talk about how the fees enable them to hire skilled, experienced agents who can provide their clients with exceptional service and much-needed guidance. And that is largely true.

Buying and selling a home is a challenging, anxiety-filled process, and the best agents guide their clients through every step. Even minor oversights can cost buyers or sellers much more than any discount they initially received—if they aren’t represented by the right agent. Often, clients who choose discount real estate brokers walk away feeling that their expectations weren’t met. This is because most discount brokerages offer limited services or lack consistency in their processes. After all, those brokers have to realize savings somehow. They do so by slashing services or by paying their agents less.

For example, flat-fee discount real estate brokers often just create a simple MLS listing and leave it that. Many don’t actively market the properties. Whereas, traditional real estate brokers—at least the good ones—don’t stop with the MLS listing. They invest time and money marketing their properties. This includes using social media, taking out ads, contacting previous clients, and more. They actively promote and try to sell the properties. They earn that 6%.

More often than not, if clients use a flat-fee discount broker, they’ll be responsible for scheduling showing times and inspections, fielding buyer questions, writing offers and counter offers, providing disclosures, and completing other paperwork. The bulk of the work is on the seller’s shoulders.

Additionally, commission-based discount real estate brokers offer more (albeit limited) services. But they aren’t usually totally forthright with their ads. They may promise ridiculously low rates, but the fine print says that the rate is for listing brokers only. It will cost clients more to pay the buyer’s broker. So, while clients will receive a discount, it usually falls in the 2% to 3% range, rather than 4% to 5%.

Furthermore, listing discount brokers typically don’t share their commissions. As a result, many buyers’ brokers won’t actively show those properties, since they won’t make a commission on it. And who can blame them?

How do you compete in a market saturated with discount real estate brokers?

By earning your commissions, first and foremost. If you are a traditional broker, build a reputation as one who goes above and beyond to meet clients’ needs. Additionally, rein in your ego and be willing to negotiate your fees. Finally, during interviews with real estate clients, be transparent about who receives a cut of the commission. The more informed your clients are, the better equipped they will be to make the right choice.

Ultimately, it comes down to “getting what you pay for.” So make sure that your clients are getting their money’s worth.

Interested in learning more? Browse real estate continuing education courses at McKissock.com. Plus, check out McKissock’s Pro-Series courses, designed to help you take your real estate career to the next level.