Traditional Broker vs. Discount Broker

The battle between traditional and discount brokers

There is a battle between traditional full-on and discount brokerages in real estate. As the housing market stabilizes and more homeowners reach or exceed the break-even point for their mortgages, more discount brokerages flood the market. The current market conditions make it an ideal business opportunity for discount brokers. So what does the influx of discount brokers mean for traditional agents? Here are the facts.

Clients can’t resist a cheaper alternative

Many clients feel that the standard 6% commission is too high. So in rushes a discount real estate broker, promising a lower commission–sometimes as little as 1%–and clients go running. You can think about this: A person selling a $300,000 house will pay $3000 to a discount brokerage. Or at least that’s what they are being told. Yet, on the other hand, they will pay as high as $18,000 to a traditional broker.

Standard commission fee

If sellers are close to a break-even point with their mortgage, or they are at risk of having to short-sell, the idea of keeping several thousand is appealing.

Clients don’t realize they can negotiate rates with brokers or agents. They may not be aware that the 6% often pays commissions for multiple agents, including the listing agent.

Sometimes, cheaper can mean cheap

Traditional brokers will be happy to discuss their high commissions. They will tell you how they can hire experienced, skilled agents that can provide exceptional service to their clients and offer much-needed guidance. This is true in large part.

The process of buying and selling a house can be stressful and overwhelming. Agents who are experienced in this field will guide clients through each step. If they don’t have the right agent, even minor errors can cause sellers and buyers to lose more than the initial discount.

Clients who select discount brokers often feel that they didn’t meet their expectations. This is a common problem because most discount brokerages don’t offer consistent services or provide limited services.

Flat-fee brokers

Flat-fee discount realty brokers will often create a simple MLS listing and then leave it at that. Many agents don’t know market properties. Traditional real estate brokers, at least the best ones, don’t stop at the MLS listing. They spend time and money marketing the properties they represent. You can do this by using social media, placing ads, contacting past clients, and many other things. They promote and attempt to sell properties.

Flat fee discount agent

Clients who use a flat-fee discount agent will often be responsible for scheduling showings and inspections, answering buyer questions, writing counter offers and disclosures, and scheduling inspections and fielding buyer queries. The seller is responsible for the bulk of the work.

A commission-based discount broker offers more but limited services. They aren’t always completely upfront with their advertisements. Although they may offer low rates for their services, the fine print states that it is only applicable to listing brokers. Clients will have to pay more for the broker who represents them. Clients will get a discount, but it is usually between 2% and 3%.

Listing discount brokers don’t usually share their commissions. As a result, many buyers’ brokers won’t actively market those properties because they won’t get a commission. They are not wrong, and who could blame them?

How can you be competitive in a saturated market with discount realty brokers?

If you’re a traditional broker, establish a reputation for being a person who goes above and beyond in meeting clients’ needs. Be humble and open to negotiation of your fees. When interviewing real estate clients, it is essential, to be honest about who gets a commission cut. Your clients will make better decisions if they are informed.

It all boils down to “getting the value you pay for.” So make sure your clients get their money’s worth.

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