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Are Discount Real Estate Brokerages a Good Deal?

If you’re buying or selling a home in Stapleton recently you may have noticed that there are some new discount brokerage firms out there that promise lower fees and excellent service?  So are they a good deal?

Below are my thoughts about that topic based on what I’ve experience as a Realtor, using a current transaction in Stapleton I’m working on with one of these discount brokerages as an example.  My thoughts are based on my personal experience and not all discount brokerages are the same.  I imagine they vary in their practices and some are better than others.

Before I tell you about my current example I should clarify a few things.

I should say that in theory I like the concept of the discount real estate brokerages.  If they have a business model that is financially viable while saving clients money then I think that’s great.  I’m not an “old school” broker that thinks that real estate has to stay the same, in fact I know it will evolve and in some ways it should.

I also want to clarify what I mean by “discount brokerage”, when I say that I am referring to very low flat fee real estate brokerage companies.  Most brokers vary their fees on occasion but I am not talking about those types of discounts in this post.  Discount brokerages charge a flat fee of around $500 – $3,000 for their services.

So I like the idea of the discount brokerage but in the real world I have not been impressed and ultimately I don’t think they are the best deal for the client.  Let’s use my current transaction with a discount brokerage firm as an example.  I represent the buyer and the discount brokerage represents the seller in this scenario.

The first thing I notice is that their main marketing photo on-line is a picture of the garage from the alley.  As a Realtor you always want to put your best exterior photo as the main one on-line.  So it’s clear to me that whoever uploaded the photos didn’t realize this is a photo of the garage from the back!  My guess is the person never even saw the home.

When we entered the home we discovered that the basement was fully finished even though the marketing stated that it was unfinished.  That’s a huge marketing opportunity for the seller that was completely missed!  Could they have had more foot traffic and multiple offers if people knew about all this extra finished space?

Despite the poor marketing, we decided we like the home so we do our homework on the value and conclude the asking price is a little high.  I’m not sure if the discount brokerages spend much time helping their clients determine value but my guess is because of their business model they do a pretty quick valuation (if they have low fees they have to do high volume which means they have to move quickly, right?)

We make the offer and start to wait for our response.  As we start to wait one of their team members calls me to let me know that they have received an offer and since I showed the property he asked if I would like to make an offer as well.  I informed him that I was the one that made the offer already…to which he responded “oh”.  It seems they have a bunch of team members not talking and no one on top of this transaction that even knows what’s going on with it.  Frustrating.

As we are waiting for the seller’s response I learn from my client that she can close on her existing home 2 weeks sooner so I notify the discount brokerage so they can move up our contingency date (the date we have to sell her house by) by 2 weeks.  Despite the fact that we told them this when they sent us a Counter Proposal on our offer they didn’t change that date, which would have been to their client’s sole benefit!  This lets me know that one team member is not speaking to another on their end and the end result is even when they are handed valuable information that will help their client they don’t use it.

We were able to get the property under contact eventually and we’re moving forward.  I’m curious to see how the rest of the deal goes…maybe I’ll have to update this post at the end with more info.

So what does this example tell me about the discount brokerage model?  I don’t think they are bad people and I think they have good intentions but in practice the model isn’t living up to it’s promise of providing great service.  Every time you call them you speak with a different person so no on their end really “owns” the deal..which means no one is really as informed as they should be. In my opinion the client would have been way better served by an agent who is specifically assigned to sell this home for them and would be paying attention to the details.

Discount brokerages charge less but you can’t just look at the price of something, you have to look at the value…meaning what you get in return for the price you pay.  If the home is poorly marketed and represented via negotiations which causes it to sell for less than it would with a full service Realtor did the savings on broker fees really benefit the client?  The discount brokerage model is built around low fees to the client but to make that work they have to do high volume and low cost spent per deal…which to me appears to result in sloppy, poor service to their clients.

To their credit these brokerages are having some success in attracting new clients because their marketing sounds appealing…”same great service with less cost”.  In reality I think it’s way less service at less cost which in the end does not benefit the client.  The Stapleton homeowner market is smart though and people won’t be fooled for long.  Either the discount brokerage model will have to improve to provide better service or the business model will fade away because clients will learn that their not getting good value.

Thoughts?  Agree?  Disagree?  I’d love to hear about your experiences with discount brokerages, whether you agree with my stance or not.  And by the way, I’m not saying you need to use me as your Realtor but I do believe you should use a local, knowledgeable Stapleton Realtor who will focus on your needs (and unfortunately for me there are quite a few good ones!)

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