Rise of the Discount Real Estate Broker
Is the rise of the discount real estate broker the same as the movement in the early 1990s to the discount stock broker?
I ask because of the interesting article by Matt Kempner in The Atlanta Journal-Constitution titled “UnReal estate agents: why do we still buy, sell homes this way?” The article says “About $940 million would have been spent last year on residential real estate commissions in metro Atlanta, if everyone who sold a local home through MLS paid a six percent commission.” That’s a lot of money.
Just as with stock brokers in the early 1990s, customers are saying they don’t need all the services provided by the real estate agents, and don’t want to pay for them. Much of the preliminary work is done online. There is even technology available to make an offer for a house online with an app. With stock brokers, customers didn’t want to pay for all the services including research. They just wanted to buy and sell stock.
Frankly, I’m surprised it has taken this long for real estate brokers to feel the heat. But, it is the advent of new technology that is causing the move away from the traditional commission rates. How much can a seller expect to pay in real estate commissions? There are no regulations governing commission fees, so they vary. Sellers in Atlanta can pay between 3 and 6 percent.
Consumer advocate Clark Howard said the commission structure “makes no sense at all. It is an antiquated thing.” He’s being too nice: The commission structure stinks. The amount of work involved in selling a $400,000 home isn’t so much different from selling one priced at $200,000, real estate people tell me. But the commission is double.
In the last few years we’ve seen the rise of the boutique broker who has a lower commission rate. Some real estate offices may offer a sliding scale commission of between 2.5 percent and 5 percent.
“Larger companies, such as Redfin, offer buyers lower commission rates than usual if they live in Washington D.C. The company cut their commission rates from 1.5 percent to 1 percent to attract more sellers to choose their company, when they sell their home.
Here’s Kempner’s short-term solution (which, by the way, he has used in the past): “If you are in the market to buy or sell, at least explore handling much of it on your own. Don’t go for 5 or 6 percent commissions (unless you’re selling an inexpensive home). If you have a buying agent, scour online sites yourself to make sure you’re seeing great houses that may not offer them a commission. (Try offering your agent a flat fee for their services.)”
Here’s another possibility. Sell your house to a real estate investor. We will walk through your house, note any maintenance issues, such a wiring, siding or roofing, determine what upgrades are needed to appeal to today’s home buyers, calculate what kind of return on investment we need, and make you a cash offer for your house. Our offer is based on our knowledge of the neighborhood and what prices homes are selling for. You are free to ask any questions about how we arrived at that price. There are no fees commissions or upfront costs.
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