Discount Brokerages

The bane of any active realtor's existence right now is "discount" brokerages who promise the public a lower commission for the exact same services I offer. The general public tends not to be sophisticated buyers and sellers, given they don't buy and sell regularly. Therefore, the buyers and sellers aren't necessarily calculating what this really means. However, the discount brokerages make their services sound sexy. 

For example, there is a company out there who has a color in its name. They are charging a 1% to 1.5% commission to the seller (with the phrase "buyer's commission not included" in small print). They are also charging a flat dollar amount starting at $6,500 along with the percentage. So think of it this way, the seller's commission has two parts and then there is the buyer's commission.

Therefore the total commission is $6,500 plus 1 to 1.5% of the sales price PLUS the buyer's commission. If a home costs $240,000 that would generally be around $16,000.

If one were to use a traditional method of just a straight commission, well you can do the math, but I guarantee it is lower.* By the way, in the Phoenix metro market, most homes do not cost $240,000.

The same holds true with buyers. In this model, these buyers are to pay a flat fee (often up front before any home is found) and a percentage commission to their agent. If the sellers aren't offering this buyer commission, then the buyers are on the hook to pay their agents. Imagine if a buyer doesn't have it but signed a contract to pay it no matter what? Don't be shocked, it is happening. Or, imagine this.

And then, if all goes well, this discount brokerage is offering a rebate back to buyers (subject to lender approval) when the home closes of somewhere in the half a percent range. Where does this money come from? The seller's proceeds actually, but on paper it looks like a virtuous brokerage that cares about its clients.

It is all convoluted, but the buyers and sellers don't know any better. They aren't sitting around doing the math. They are seeing "discount!" This model is becoming popular with the fly by night companies coming into town, touting "experienced agents." Whatever. These "experienced agents"  are the same agents who worked for 21st Century, Executive Realty or Max/Re three months earlier and jumped ship for better leads.

I am not the only one frustrated by this smoke and mirrors game. I talk to other agents often who know the public is being duped. We don't have the capital to fight this. Nor do I have the time. Besides, it sounds great on the Internet. And we all know whatever is on the Internet, must be true.


*Note, I am not allowed, by law, to discuss actual commission percentages as we don't have a "typical" commission in my industry. That is the line that keeps me out of trouble with the powers that be. But for the example above, think around 6 percent.