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The Truth About Discount Realtors

Should You List Your Home With a Discount Realtor?

If you’re planning to list your home for sale, there’s a good chance you’ve noticed some discount Real Estate Agents offering to sell your home for low or discounted commission. Often the discount service is paired with claims that you’ll save a huge amount of money and this is the smart way to sell. If you’re thinking of listing your home for sale with a discount Realtor, its vitally important that you understand the risks first.

Do discount listing Agents sell homes?

Yes, in some cases.

Should you use a discount Realtor?

Maybe. It depends.

Why?

In most Real Estate transactions, the listing fee doesn’t all go to the listing Agent; they typically receive only a small fraction of it as their fee. Most Real Estate Agents (both buyer’s Agents and listing Agents) don’t receive a salary and work on a commission only basis. It’s a common misconception to think that the entire listing fee goes to the listing Agent, because they were the one who negotiated that fee.

Generally, half of the agreed listing fee is given to the Buyer’s Agent as their fee. Buyers Agents are legally required to look after the best interests of their clients and to be impartial about the commission offered on the properties they show. Of course, these Agents are human beings, and when looking through the list of properties they are about to show their clients they do see the amount of commission offered. So when they see a property offering a 3% commission and a property offering a 0.25% commission, which property do you think they hope their clients buy? Do you think that, despite it being illegal and unethical for them to do so, they are likely to steer their buyer clients towards the property that pays them many times more commission? Should this happen? No. Does this happen? Yes.

If a listing Agent takes a listing at a very low amount of commission, you need to ask yourself how much money they will be offering to the buyer’s Agent and what effect that will have on the chances of your home selling. Will your home go to the bottom of the list of homes shown? Will your home be recommended at all? How much will the number of buyers seeing your home be reduced by the low commission?

Frankly, the likelihood is that your home will sit on the market with few showings because Agents aren’t motivated to sell it or even bring their clients to see it. You are vastly reducing the number of potential buyers for your home by not offering a desirable amount of commission to their Agent. In fact, we often recommend offering a higher rate of commission on the buyers Agent side in order to motivate every buyers Agent in town to bring their buyers to your home. None of the additional commission goes to us.

Discount Realtors Can Cost You More Money

While some properties that are in a great location, and priced correctly, will sell very quickly with zero marketing if they are simply entered into the MLS, this is not the case for most properties and a marketing budget is required.

Assuming that the listing Agent gets half of the listing fee (after paying half to the buyer’s Agent), that listing Agent then has to pay for the marketing of your property from their half of the listing fee. When an Agent is making a tiny amount of money for something that takes an enormous amount of work to do the right way, how much of that money do you think they will sacrifice in marketing dollars? Do you think that there’s a chance they won’t spend anything at all on marketing the home because they simply don’t have enough money to market it at the price they are charging and still have money left to pay themselves for their work?

The likelihood is that your home will not be marketed beyond simply entering it into the MLS and perhaps an open house (which doesn’t cost the Agent money to arrange).

So, if your home isn’t one of the homes that sells immediately and ends up sitting on the market with few showings, the listing ends up becoming stale and you end up having to drop the price below the price you could have achieved with the right marketing. You end up losing more money than you would have saved in listing fees and it becomes a false economy.

Remember that 1% of nothing is nothing; an Agent can quote you any commission number they want to but that percentage doesn’t matter if your home doesn’t sell. Savvy sellers understand that they will net more money by selling at or above market value and paying more commission than selling their home at a knock down price and paying less commission.

Let’s do the math…

A $1m home that has no marketing and offers a low commission to buyers Agents, sits on the market with few showings, and ends up being reduced by 10% in price to $900,000 to achieve a sale. The seller pays 1% in commission. The seller nets $891,000 in this scenario.

If the same home were discounted in price (or received a low offer due to the buyer having to pay more out of pocket up front) by 5% to $950,000, the seller paying 1% commission nets $940,500.

A $1m home marketed correctly, sells for $1m. If the seller pays a 5% commission, the seller nets $950,000.

There ends up being a $9,500 loss in net proceeds at a 5% reduction and a $59,000 loss in net proceeds at a 10% reduction, and the seller listing with a discount Agent mistakenly believes they got a great deal because they saved on the commission paid!

Remember that the SALE price is VANITY and the NET price is SANITY!! 

So why would an Agent take a listing that doesn’t have a high chance of selling?

To put it bluntly, it’s a numbers game. As we stated earlier, some homes will sell this way with minimum effort and zero marketing. The ones that don’t sell can be used by the Agent to try and get buyers for other listings; this is done by holding open house events. Most Agents know that if they hold an open house at a listing, there’s a good chance they will pick up a buyer client for another property and this makes it financially worthwhile for that Agent to take on the listing they don’t expect to sell.

Sometimes, discount Agents use an advertised discount deal as a way of getting clients by saying that they will offer a discount if the home sells within the first week, two weeks, month, or whatever timeframe they have decided to use. The reality is that they are highly unlikely to market your home in such a scenario until their commission raises to the higher amount agreed; the chances of your home being marketed by the Agent during the discount period are slim to none because it isn’t in that Agent’s interests to sell your home during that period. Please don’t fall for this trick; its just a sneaky bait and switch way of getting you to list your home with that Agent.

Now you may be thinking that the buyer should be the one to pay the buyer’s Agent commission if they want representation; of course, this is an option, however, for most buyers, having to bring additional funds to the transaction is a deal breaker. Remember that buyers have many other properties to choose from that don’t pose this issue and additional expense.

We are members of numerous online Realtor groups in which we regularly see Agents discussing scenario’s such as this and openly stating that they refuse to work for free and won’t even show homes that don’t pay a reasonable commission. We’ve seen many Agent’s discussing real life cases where their buyer has been offered the options of paying the Agent themselves, or proceeding with that purchase without representation, and in every case we’ve seen the buyer opts to purchase a different home.

The reality is that often, the type of Agent who offers discount services, is offering not just a discount in commission but also severe cuts in the level of service. Sadly, the home seller is too often led to believe that they are getting the full service and marketing of their property that they expect from a Real Estate Agent.

If you’re considering listing your home with a discount Agent, we recommend that you only consider doing so if you are absolutely certain that yours is one of the homes that will sell itself, otherwise you end up harming your chances of selling and risk losing more money than you could have saved.

If you’ve previously listed your home for sale with a discount Agent and it failed to sell, reach out to us to see how we can help you; we are often the second or third listing Agent on a property and have developed strategies for overcoming the stigma attached to properties that have been listed for some time and failed to sell.

Reach out to us HERE for a no-obligation discussion about your Real Estate needs.

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