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Discount or Flat Fee Realtors

MonteDobson

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Hello all,



I am looking for some feedback:



1) For Buyers and Sellers: Have you used, or considered using a discount or flat fee realtor to sell or buy a home? If so, how was your experience?



2) For Realtors:
What are your thoughts on these types of companies such as 1% Realty, 2% Realty or Assist to Sell? As a buyers agent, does a lower potential commission dissuade you from showing a home with your client (ie. do you "blacklist" these types of listings)??



Interested in hearing your thoughts?
 

ChrisDavies

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[quote user=MonteDobson]

2) For Realtors: What are your thoughts on these types of companies such as 1% Realty, 2% Realty or Assist to Sell? As a buyers agent, does a lower potential commission dissuade you from showing a home with your client (ie. do you "blacklist" these types of listings)??


For my buyer clients, we always talk about how I get paid. Beyond the normal listings, I often help clients buy MLS mere postings (negotiate the commission), new builds (the developer pays me), FSBO's (where the owner pays me or my client does) and exclusive buyer brokerage (where the buyer client pays me directly). For 99% of them we always start with "full" price MLS listings. In those cases the client says we should skip the discounted commission properties.



The funny thing is when I show a couple of them anyways, after we've looked at them and I tell my client what they're offering for commission they almost always tell me to take it off their list. They
think I work too hard for that.



My issue with the discount brokerages and MLS mere postings is they're being misleading in their advertising. You might save the sellers' half, but you'll end up paying full stick to the buyers' agent. If you're only really saving $5-7k I'm sure that a full-service agent can get you more money and/or prevent a buyer from muscling you down on price if things go a little sideways.



The second issue is that due to mere postings and the actions of the competition bureau, the MLS system is becoming less effective and the data is becoming less accurate. Part of what means for sellers (and has always meant) is that agents need to be experts at marketing and negotiating. Just throwing something up on the system and doing an open house isn't good enough. When I see the discount offices, I expect to see sub-standard agents and know we can take them for a bit of a ride to get my buyer a better deal.
 

RealtorDave

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Well said Chris.



I'll also throw in that when I show discounted commission listings, they almost always look like crap. Good buyers can see through that (i.e. investors) but the average home buyer can't picture living there, and therefore won't consider it.



I have noticed most people using Welist on MLS do offer full buyer's commission.
 

RedlineBrett

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[quote user=ChrisDavies]My issue with the discount brokerages and MLS mere postings is they're being misleading in their advertising. You might save the sellers' half, but you'll end up paying full stick to the buyers' agent. If you're only really saving $5-7k I'm sure that a full-service agent can get you more money and/or prevent a buyer from muscling you down on price if things go a little sideways.


I think a lot of rookie sellers just don't understand how the two sides work in buy/sell. They hear a full price guy's fee and then the discount fee and they think that if they have MLS access and a realtor working for them that they are getting great savings.



Working a buyer is a completely different process than a seller. 90% of the job is done independant of the property the buyer ultimately chooses and it takes a lot of the realtors time and effort before they even walk through the door of the property they end up buying. The industry recognized this long ago which is why you see standard commission rates offerd to buyers across nearly all brokerages. If a seller wants to save money by not offering this they are essentially telling the agents representing buyers that they don't value the work they have done with their clients to get them ready to buy their property. Realtors don't see it that way and hence these properties don't get shown or the seller ends up having to pay for the commish anyway through a reduced price and a buyer brokerage agreement with the buyer.



[quote user=ChrisDavies]he second issue is that due to mere postings and the actions of the competition bureau, the MLS system is becoming less effective and the data is becoming less accurate. Part of what means for sellers (and has always meant) is that agents need to be experts at marketing and negotiating.


This is definitely happening. All it does is make the good realtors stand out more though, so I don't have a problem with it. As the boards screen more of these listings the discount brokerages will start getting fined for inaccurate information, and will end up having to increase their service level (and fees) to make sure they are consistent with what their local boards require.
 

RedlineBrett

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[quote user=RealtorDave] Well said Chris.



I'll also throw in that when I show discounted commission listings, they almost always look like crap. Good buyers can see through that (i.e. investors) but the average home buyer can't picture living there, and therefore won't consider it.






If sellers are too cheap to offer a proper brokerage commission they're usually too cheap to keep their properties in top shape.
 

Thomas Beyer

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If you feed peanuts, you get monkeys.



By and large in life you get what you pay for. A hotel at $250 a night is usually better than one for $45. A car for $60,000 is usually better than for for $15,000. An airplane seat in business class at $2500 is usually better than in coach for $800. etc.



The real estate brokerage business is very competitive and rates used to and still do reflect that.



There is the odd exception, like always, but not the rule.



Therefore, if you envision selling the house yourself, because

a) you're very good at it, AND

b) you love it, AND

c) you have plenty of time, AND

d) the house is in ship-shape



but you are not a realtor and want maximum exposure than yes, a 1% or flat fee MLS listing might work for you.
 

MonteDobson

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All very good points and thank you for the feedback!



To clarify, I am by no means trying to undermine what realtors do and what they get paid, however, I'm just trying to wrap my head around a few of the concepts. I'm actually thinking of getting my license myself at some point, and thus the reason for asking these questions as I feel there is a downward trend in potential revenue as more of these types of offerings are more common place.



From what I understand, realtor commissions have not changed in over 30 years, with typical being 7% on the first 100K and 2.5-3% on the balance. So on a $400K house, that's $17K in commissions split b/n the buyers and sellers brokerages. Of that the agents will get a %, depending on their agreement with their brokerage. Whereas, with say 2% Realty, the commission would be $8,000, split as negotiated. And for that $8K, they are offering:

  • Full MLS.ca exposure to the general public and all members of the Real Estate Board
  • Extensive marketing for maximum exposure of your property in multiple social media platforms and online at 2PercentRealty.ca
  • Concise and professional completion of all paperwork relating to the sale and or purchase of your property
    Comprehensive and expert analysis of current buying and selling trends in the Real Estate community
    A Free, 2% Realty` consultation to clearly understand your expectations, requirements, budget, and timeline
So my question, as a seller, by paying an additional $9000 in commissions, what additional value and services am I getting? Also, on that same $400K house, the seller would have that same amount in price "wiggle" room, which may entice a quicker sale?



In the past (on the buyers side) realtors had to do much of the primary work themselves (ie. drive around to every property to "scout" for their buyer clients). Now, much of this is done online by both the realtor and buyer. As a buyer, even if I have a buyers agent, I am going to go to MLS first and do my homework. I know the neighborhood, style of home and price range that I am looking for. Then I phone up my realtor and ask for more details on the homes that I'm interested in, and will only view the one's that I'm truly interested in. (But maybe I'm different than most people shopping for homes).



In looking at a number of listings from some of these companies, the properties don't appear to be "sub-par" or in poor condition. Perhaps a % of buyers and sellers in the market are getting more savvy and not willing or prepared to the big bucks any longer, although there is still a segment of folks that will pay someone whatever it takes to get their home sold.



Thanks again for all your input!
 

RedlineBrett

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[quote user=MonteDobson]So my question, as a seller, by paying an additional $9000 in commissions, what additional value and services am I getting? Also, on that same $400K house, the seller would have that same amount in price "wiggle" room, which may entice a quicker sale?


Listing rates have come down a lot. Very few realtors charge 7/3. I only charge that if a property is cheap or is going to need extra special marketing or will take more of my time than average. My rate for a good property priced to sell is 1.25% of sale price. If you're trading up or down and buy with me too I drop my rate to 1%. If you want a lot of expensive advertising then I charge it back to you. Works well for my business and I don't lose many listings. This rate is pretty common for listings these days, at least in Calgary.



I also have a self-sell option, where all I do is market the property for the seller and then charge my services back 'a la carte' but sellers pay me as they go, not only if their property sells and I require they pay a full buyer commission. This model is getting more common too.



I can tell you that working a buyer client is 10x the work of a listing client. There is a lot of upfront work - more than you know from your post above. There is also providing comparables and negotiating a price, then working through all the required due dilligence. You are always working around your client's schedule, and you end up working for free if your client ends up not buying.



There is also the risk of the deal dying for something out of your control - say a bad property inspection or worse (but more and more common) the buyer not being approved for financing. The compensation has to be worth it for realtors to take this risk.



You've bought more than one or two properties... but most buyers are not like that. They're going to owner-occupy so their realtor has to run the whole gamut of the sell process. That will never change regardless of how good technology gets. Inexperienced buyers still need their hand held. Realtors want to get paid for this work and the vast majority of sellers recognize that this is how it works.



I think you'd find if you pushed your listing realtor for their best rate you'd see them come down a lot from 3.5/1.5. You can get good deals on listing fees and if you're a shrewd seller you probably don't need a lot of service. You should offer full pop for your buyer agent fees though, or you risk your property not getting showed by agents that haven't had that talk with their buyers about discounted listings. By not paying a full buyer agent commish you are basically telling the buyers that you are not paying for the work their realtor did to get them to where they are - ready to buy your property.
 

MonteDobson

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[quote user=RedlineBrett]

I can tell you that working a buyer client is 10x the work of a listing client. There is a lot of upfront work - more than you know from your post above. There is also providing comparables and negotiating a price, then working through all the required due dilligence. You are always working around your client's schedule, and you end up working for free if your client ends up not buying.


Thanks Brett!



Yes, I can see now how the buyers side would be much more work (ie. hand-holding). What about if your client demands to go see 5 "discounted commission" properties, what is your typical response? Just wondering how clients respond when you tell them you won't show them a house...because you won't make as much money on it.



Also, how much are typical buyer agent commissions?



Lastly, what would be a typical % of a realtors income is generated from listings vs representing buyers? I assume the key to this game is to get listings and sell homes (highest profit per hour work) vs running around all day with buyers??
 

RedlineBrett

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[quote user=MonteDobson]What about if your client demands to go see 5 "discounted commission" properties, what is your typical response?


I tell them I will sell them anything they want regardless of what the seller is offering, but I am getting paid 3.5/1.5 no matter what and if it isn't coming out of the seller's pocket then it will be out of theirs. I do this up front before we even start talking about any specific piece of real estate. If you want to write a tonne of trash offers I charge extra for that up front.



[quote user=MonteDobson]

Also, how much are typical buyer agent commissions?


3.5% of the first $100,000 + 1.5% of the balance of sale price



[quote user=MonteDobson]Lastly, what would be a typical % of a realtors income is generated from listings vs representing buyers? I assume the key to this game is to get listings and sell homes (highest profit per hour work) vs running around all day with buyers??



Depends. Young realtors or inexperienced realtors will do a lot of buyer business. As you get older and more experienced and have a deeper client list you usually do more listings as it's a better $/hr return than buyer clients... even with a discounted listing rate. So yes you are correct. My specialty is investment property so I work with a lot of buyers... but most realtors would rather have a listing that a buyer client.
 

ChrisDavies

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I'd also like to point out that the 7/3 common here usually averages out to ~4%. 5% is common in ontario and most places in the US are 5-6%.



For business brokerage (a small part of our business) we charge 10%.



I think the 2% business models are fundamentally underpriced and won't be around long-term.
 

bizaro86

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[quote user=RedlineBrett]Listing rates have come down a lot. Very few realtors charge 7/3. I only charge that if a property is cheap or is going to need extra special marketing or will take more of my time than average. My rate for a good property priced to sell is 1.25% of sale price. If you're trading up or down and buy with me too I drop my rate to 1%. If you want a lot of expensive advertising then I charge it back to you. Works well for my business and I don't lose many listings. This rate is pretty common for listings these days, at least in Calgary.





What's your definition of cheap with respect to the above in the Calgary market? IE under 200k, under 300k, under 400k, etc?



Regards,



Michael
 

MonteDobson

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[quote user=ChrisDavies]

I think the 2% business models are fundamentally underpriced and won't be around long-term.


It appears that 2% Realty made the top 50 for growth in Alberta Venture magazine (not sure how accurate that list is, or what it involves). http://albertaventure.com/2012/01/albertas-fast-growth-50-2011/



I guess it really comes down to what consumers want and demand, and the difference in the level of service provided b/n the different business models. (ie. by paying lower fees, will the consumer notice a significant drop in what they receive)? Like any business or profession, there are likely 10-20% of realtors that thrive and get paid what they deserve, then there's the remaining 80% who throw a listing on MLS with 3 crappy pictures and happen to snag a sale and collect their big cheque. It's these guys that give the industry a bad rap, IMO.



PS. Brett/Chris...FYI - I'd put you guys in the "good" realtor category so don't feel that I am undermining anything that you do...:)
 

RedlineBrett

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[quote user=bizaro86]What's your definition of cheap with respect to the above in the Calgary market? IE under 200k, under 300k, under 400k, etc?




Anything under 200k if all I'm doing is selling that person's house. If they're buying with me or there is other business through my property management co or mortgage brokerage then listing fees is the first place I give breaks on.
 

DiscoChick

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From observation, unless the property is truly unsellable, the buyers agent does most of the work. To be fair the buyer should pay their agent for negotiating a good purchase and using their skills and experience to help the buyer make an informed decision on a huge investment. And the seller should pay their seller; there is something truly unsettling when the seller pays both his agent and the buyers agent via the commission because you have to wonder if the actual sale price doesn't affect how effective the buyer agent will be, after all the lower sale price means a lower commission. As you can see most buyer agents tend not to show "low or zero" commission listings. And who can blame them? I don't work for free and I don't expect any one to work for free. As a buyer I would plan to pay my agent for those low or zero commission listings, because some of them are under priced, without the aid of a realtor the FSBO may not always have a good idea of market value and more importantly the seller has paid for a service to the FSBO company, has taken the time to market their property well enough that it has "caught my eye", so why should I ask the seller to pay extra for me to buy his property? If it's a good investment I will go about buying just as any other property and pay my buyer agent when the sale completes , I agree the sale may fail but so can any sale if it fails inspection or financing or any other conditions from my laundry list; . I think at the end of the day the payment/compensation practice of today will change in competition to the FSBO setup, you pay for what you get. Agents don't get paid until a property sells, however the FSBO companies get paid whether or not the property sells, sounds like a better deal to sell with an agent, yet the FSBO market grows. My opinion is buyers should pay and hire their agents and sellers should pay and hire their own agent. It's not fair to shoot yourself on the foot by negotiating for your client , a lower sale price that inevitably reduces your commission, if anything it should be the reverse the lower the sale price from the asking price the better the commission.
 
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