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Full Service vs. Discount Broker
Discount brokers offer to market and sell homes for a little over half the commission typically charged by a full-service broker. This may seem tempting at first glance. But, once you understand how commissions work to sell your home you won’t be tempted at all. There is definitely a correlation between the commission offered to sell a home and the quality of results you can expect.
The key to getting top dollar for a home and a quick sale is marketing that provides maximum exposure to qualified buyers. One technique used by a listing broker to give their client's homes greater exposure is to solicit the cooperation of other real estate brokers. These brokers are offered a share of the commission in exchange for producing a buyer. This is a very powerful and successful method of getting homes sold. Consequently, more than half of the sales closed by full service brokers involve a second broker representing the buyer.
One of the fundamental problems with a discount broker is that they offer very little to cooperating brokers, less than half than what a full service broker typically offers buyer agents. How do you think this affects the level of participation of other brokers? It doesn’t take a degree in economics or human psychology to see that this is going to result in less market exposure for the seller. Less market exposure means a longer sales cycle and a lower price. Sometimes the final commission amount the seller pays is zero because the home doesn’t sell and the listing expires. This can be a very expensive lesson because when the home doesn't sell the homeowners often face a time crunch and are placed in a position where they have to discount the sales price of their home to encourage a quick sale.
Interestingly, a discount broker can often earn more money on a transaction than a full service broker. For example, if a full service broker negotiates a 5% commission to sell a home, typically they’re really only going to keep 2.5%. The other half will be paid to the cooperating broker producing the buyer. A discount broker may only charge 3% to sell a similar home. However, since they often produce a buyer on their own, they get to keep the entire commission. This is devilishly clever. But, does it benefit the seller? No, it does not. Sometimes a bargain is not bargain.
Besides the low commission split offered to buyer agents, many real estate agents don’t like working with discount brokers because there’s often no single point of contact. When a buyer’s agent negotiates a deal on behalf of their client there’s typically a listing agent counterpart that they can call upon if needed. The listing agent typically works on behalf of the sellers. Having this counterpart can be extremely important. The ability for buyer and listing agents to talk to each other is often critical in resolving various issues that arise in the course of trying to complete a deal. It provides a back channel for buyers and sellers to communicate and negotiate issues. In lieu of this, discount brokers often require buyer agents to deal with faceless corporate departments that make the whole process less efficient, frustrating and more prone to failure. The end result is that real estate agents feel working with a discount broker is twice the work and half the pay. If you arrived at work one morning and were told that your workload has doubled and your pay would be cut 60%, what would you do? There’s no such thing as a free lunch, who you hire to sell your home matters.
The bottom line is that when you’re planning to sell your home the best approach is the one that yields the highest net price within your time frame. An overemphasis on avoiding or lowering the commission without understanding the big picture and what methods gets the most amount of money in a seller’s pocket is an all too common mistake. Don’t make this mistake.
If you’re considering selling your home, for a higher net price call me at (732) 371-9463 or contact me via this web site. The marketing plan I offer my clients is designed to get you the best offer in the shortest amount of time.
If there are topics you would like to see addressed in the future, e-mail your suggestions to topics@edchaparro.com.
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