Pros and Cons of Using a Discount Broker

When selling your home, you might consider a discount brokerage firm to save money on commissions. Using a discount firm can save you lots of money, but discount brokers typically don’t provide the same level of service as a traditional real estate agent and could cost you money in the long run. Consider the costs and benefits to see if a discount broker is right for you. 

How discount brokers work

Some discount broker firms are online platforms that connect you with a local agent through a network. You register your home with the site, which notifies a local agent who contacts you. With that agent’s help, you complete a listing agreement online.

It’s common with a discount broker to receive offers immediately from agents with buyers whose criteria your home matches.

The benefit of a discount broker

The big benefit of using a discount brokerage is that you’ll pay less for agent commissions.  A seller with a traditional broker will pay 2.5 to 3 percent of the sales price to both the listing agent and the buyer’s agent. A discount listing broker typically will charge you as low as 1 percent to sell your home, but the buyer’s agent will still receive 2.5 to 3 percent. In other situations, a discount broker will charge the seller a flat fee rather than a percentage, or the seller will pay the discount broker a salary plus bonuses in lieu of a commission. 

The commission savings can be substantial. For example, paying a 1 percent commission versus 3 percent rate saves the seller $7,500 on a sales price of $375,000. If your discount broker charges a flat fee, you may save even more. 

Services of a full-priced versus discount broker

Discount brokers are hard-working professionals who want your success and their own. Because of the nature of the discount business model, however, discount brokers generally can’t provide the level of service you’ll get with a full-fee broker. The financial incentive for the discount agent is to do volume business, which means these brokers handle more clients than the typical full-price agency and can’t provide the same wide range of services.

A full-service broker will come to your house for a tour. First, she will take note of your home’s features, the neighborhood, and the surrounding community. Next, she will ask about the history of improvements you’ve made to the home and your goals after selling. Finally, she will do a detailed comparable sales analysis of nearby homes to choose a price carefully. From these steps, she will develop a marketing plan to sell your home. 

A discount agent may take a leaner approach. She will list your home on the Multiple Listing Service (MLS), which makes it visible to licensed agents who can show your home to their clients.

Choosing the right price is a crucial early decision in selling a home. The discount broker will also perform a cursory comparable price analysis, but with less time to devote to each client, there’s a risk the price at which she suggests you sell your home may be too high or too low. An overpriced house may sit unsold, causing you to have to make price concessions. An underpriced home might sell quickly but leave money on the table.

A discount broker may not have time to communicate as extensively. He juggles many clients and may not respond to your phone messages and emails as quickly as you prefer. Setting up a showing or an open house may take more lead time, and your agent may send an assistant to your open house or ask that you host it yourself.

You may also find crucial differences in marketing between discount and full-fee brokers. Because more than 80 percent of home shoppers first view a house via a photo gallery or a 3D virtual tour, posting professional photos and videos of your home is important. If you plan to use a discount broker, be sure to inquire about who will take photos of your property. Skimping on these crucial marketing tools may save on commissions but cost you in the long run if amateur photos and virtual tours mean your home sells at a lower price.

Get referrals on any agent you consider

The service of any brokerage comes down to the person you work with. Ask friends who have used a discount broker the name of their agent and whether they recommend him. Find one whose references are solid.

Bottom line: If a discount agent does a good job with the critical steps of pricing and marketing, you come out ahead, saving on commission. But saving on commission is not worth the price if the lower level of service means you sell your home for thousands less than you might have with a full-fee broker.