Discount Brokers? Your Listing is Bait for Buyer Leads; Selling Your Home is not a Priority

Ultimately, discount brokers rarely end up saving sellers money. Should a home seller list “by owner” or with a “discount broker”? Maybe, but go in “eyes open” because in the end, selling that home is not the objective of the brokerage. Sounds crazy but that’s the case. And when a home does sell, many sellers find minimal savings or no savings as compared to working with a competent real estate agent. Competent being the operative word.

Discount brokers make money from generating buyer leads from their listings. Listings generate calls and those calls are converted into buyer leads for the brokerage. If the listing happens to sell, it’s gravy. Sellers pay administrative and prep fees up front; the brokerage has little to no skin in the game. But they do have bait out for buyers and when sign calls or internet inquiries come in, those buyers are heavily recruited. Great fanfare is made of “reduced” prices but the objective is diametrically opposed to the home seller’s objective.

Discount brokers make money off converting buyer leads, not selling listings. Sellers pay fees upfront and they are nothing more than “buyer bait”. If a listing sells or doesn’t sell, it matters not. It’s simply bait and naive sellers fail to understand that the broker has zero skin in the game.

Now consider the math using a discount brokerage on a 100K home as an example:

  • The typical listing runs 6%. Many agents will negotiate down on the list side if they represent a seller on the buy side.
  • Buyer’s agents typically get 3%. That’s key because many agents will be “slow” to show homes that don’t offer buyer agent protection. Say $3,000
  • Without entry into the MLS, there’s almost no point to list. Yes a home can sell as a pocket listing or though informal contacts but those are very few and very far between. FMLS charges brokers 0.0012 of the sale price, say $120
  • Then the nebulous “administrative” fees charged. These vary with some companies at $500 + 0.075 of sale price, others ranging from $300 to $1,595. In short, these fees are for “consultation, advice and data entry”; some of the higher charges include things like lock boxes, “free” changes, featured listing slots and 25 photos. Keep it cheap and say $800.
  • But, if you want things like a lock box, enhanced web listings, additional photos, social media push…it’s all extra. Say $750 and that’s conservative.
  • So the math looks like $3000 + $120 + $800 + $750 = $4,670+- for the average “discount” or “buy owner” firm vs $6,000 for the “traditional” model. Call it a savings of $1,330+- if the home sells…without issues during due diligence and appraisal – which are unlikely.

The problem with the math above is that more often than not, the home fails to sell. Usually the owner has spent money on “extras” that are not included in the basic packages and that “savings” erodes. In the current environment, the MLS is important but not nearly as much as it used to be. Buyers are finding homes all over the web and MLS feeds are not the only source of feeds. When they show up with lousy pictures that are not professionally shot buyers move on. Dull narratives? Nothing compelling and improperly priced? Buyers move on. Email or phone inquiries that are never answered? Buyers move on. In most cases, this is all on the seller – unless of course additional fees are paid upfront.

Other challenges to consider – and this isn’t a slam on discounters, this is just what typically plays out.

  • In almost every case, the homes are overpriced. There is typically a charge for a QUALITY home market analysis and most don’t get that. The result is an overpriced home that either fails to sell or fails to appraise. As it languishes it develops a history, a stigma and questions begin to surround it.
  • Many agents avoid these listings even with 3% being paid. Many find they have to do the work of two agents.
  • Unless the correct lock box is there, access can be a challenge. No access, no sale.
  • Negotiation guidance – true guidance – is often an extra charge. The typical owner has little idea of how this process works and how a skilled buyer’s agent can exploit them.
  • Inspections, appraisals and other due diligence items are usually dealt with by the owner – and often taken personally. This can result in unwarranted drama and challenges to get routine things completed.

The real estate industry deserves the horrific reputation it has. The DANGER report exposed the agent community for what it is; grossly inflated with incompetence and irrelevance rotting the core. A darker picture could not have been painted and the conclusions were not a surprise to most. However, there are full time, experienced professional agents that can be hired for about the same as any discount firm. In the end, here are several stages to selling a home. What will a competent pro save you when it comes to time, pricing, presentation, negotiation and managing the process? That answer is found in the significant number of “discount” listings that ultimately relist with a pro.

Is it expensive to sell a home? Yes and that may change at some point with the “disruption” on going due to transparency – and that is long long overdue in this industry. Keep in mind though, it takes a significant amount of time and effort to make this look boring. And never underestimate the damage that can occur when things go wrong in this business. Money is always involved and many times things get real deep, real fast. Having an experienced agent to keep things boring and to keep deals off the rocks is worth the cost.

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