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Are Discount Agents The Same Quality As Full Service REALTORS®
Dated: March 9 2019
Unless you’re completely tuned-out these days, you’ve likely heard radio commercials and see ads on TV or social media from a variety of new companies or real estate brokerages offering to sell your home for less money This is a hot topic in the real estate industry right now and it has everyone asking what kind of impact these discount services are having on the consumer- home buyers and sellers like you. Are the results really comparable? Do you save money with lower commissions or do you sacrifice the quality and stand to lose money?
Let’s start with the basics. The majority of real estate agents are paid in the form of a commission after closing, once a sale has been successful, and this commission is the only form of payment the agent receives. There are a handful of brokerages that pay their agents a salary instead, but the commission structure is by far the most common, and there is no such thing as a "standard" commission. Each agency sets their own rate. When an agent knows that their livelihood depends on getting the job done, they’re going to be pretty motivated to succeed. Salary agents may not have to worry that a bad month will mean no income, but they likely have sales quotas to meet, and at the end of the day they’re doing their jobs to make a living just like everyone else. Think about your job. No matter how much you like what you do, would you still go to work every day and do the same job if you weren’t being paid? How might a pay cut impact your performance at work? How might your motivation change if you were paid per project completed instead of an hourly or annual flat rate?
Commission numbers may look big on paper, however, the number on a closing statement is a gross rate, before taxes, broker splits, insurance, marketing, staff salaries, and all other business expenses. These operational costs range from roughly 10 to over 30% of an agent’s income, on average. So when you see an ad for an agent or company offering to sell your home at 1/3 of the typical agent’s rate, you might wonder how they’re able to do that and still make a living. The answer is simple- they’re other operating on a bulk model or they are cutting costs to the bare minimum. A bulk model will require the discount broker to sell about 3 times as much as a full-service agent in order to earn the same income. By taking on so many additional sales, they must operate in a more “transactional” role with reduced customer service and attention. In other words, clients can expect to be treated like a number. That might work for someone who has sold many houses, like an investor, but not so well for the average person who might sell one every 5 to 10 years and need guidance. As for cutting costs, some can be a good thing when passed along to clients, but some can mean less marketing and exposure for your home. Exposure with strong marketing is a key element in a top-dollar sale.
Skilled agents with a record of successful sales usually know their value to clients. Which begs to question why an agent would choose to work for a lower rate than their colleagues. New agents seeking to build their business may be attracted to the bulk model as a way to compete with more experienced agents. Others may be motivated by volume of sales. But others may cut their rates because they’re lacking business and struggling to make ends meet, or because they are not strong negotiators. Negotiation skills are paramount in real estate as agents are tasked with negotiating home prices, repairs, and contract terms. How will an agent that’s quick to compromise their own income stand up to buyers that want to negotiate your home’s price too low, or ask for unfavorable terms?
Not all agents are equal, and numbers don’t lie. An analysis of various discount brokers and agents in the Dallas-Fort Worth metroplex shows another difference between full service agents and many discount agents. Some of the discount brokers successfully sold as little as 61% of the homes they listed for sale. The remaining homes sat on the market until their contract expired, or the sellers grew upset and fired their agent. In contrast, most full-service Realtors have a success rate in the mid to high 90% range. Of course there will always be situations where a seller changes their mind, or refuses to accept reasonable offers, so 100% is tough to achieve, but think of it like a grade for the agent. Do you want the A student selling your home, or risk it with a student that’s barely getting by? In addition, full service agents tend sell homes that they list for higher prices than discount brokers because they’re leveraging their experience, marketing strategies, and know how to back up their pricing to the bank’s appraisers. Bottom line- you're likely going to sacrifice quality service if you're cutting costs on your agent. True professionals are worth every penny and more!
If you’re planning to sell your house and not sure which agent is best, interview at least 3 to find a good fit. Ask for documentation showing how many homes the agent has listed for sale, how many they’ve sold, and more important- how many they didn’t sell. The results may be pretty eye-opening. Remember that your home is a huge asset, so hiring a strong professional to market and sell it is a wise investment that will likely pay off in the form of a higher sales price, better terms for you, and less stress.
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Scott and Tammy Watson are the Owners and Team Leads for GroupWatson, Keller Williams. With 53 years of combined real estate experience, a "Client First Philosophy" is exemplified by providing excepti....