Understanding Full-Service vs. Discount Brokerage
Considering working with a discount broker? Read this first.
Real estate transactions are often the largest investments and sales a person will make in their lifetime. This idea can be daunting, especially when each aspect of the real estate process comes with its own associated cost.
Because of financial concerns, many people seek out a discount broker to assist them with their real estate needs. However, it’s important to understand that working with a discount broker will likely not mean more money in your pocket at closing. Here are a few aspects to consider as you weigh your options between discount and full-service brokerages.
In many cases, when commission reductions are advertised or negotiated, there are likely corners being cut or extra fees waiting along the way. For example, you may find a discounted broker advertising a 1% commission, but what may not be clear at the start is that they will charge extra for the buyer’s agent commission (between 2.5 and 3 percent) and will charge extra for photos and marketing.
In addition, discount brokers usually will not be your fiduciary, meaning that they will not represent your interests, negotiate on your behalf, or provide advice and counsel along the way. The legal and financial implications of a real estate transaction requires ongoing counsel from a trusted and experienced professional.
When you work with a full-service broker, you’ll receive guidance at every step of the way. Your full-service broker can provide expert staging advice to help prepare your home for sale, and aspects like photography and marketing are included in the cost of service.
In the case of a negotiated commission reduction, there are often corners being cut. For example, that smaller budget often means fewer marketing strategies are being deployed to get your listing in front of the right people, and the few marketing strategies used are likely to be less effective. The 1% or 1.5% discount is likely to come at the cost of quality marketing for your listing. In this scenario, there is often a lower commission offered to the buyer’s agent as well.
Part of what you’re paying for with a full-service broker is an investment into high-quality marketing. A full-service broker will utilize online, print, TV, and social media strategies in order to get your listing in front of the right people, generate traffic during showings, and bring in multiple offers on your home.
Differences in Skill and Experience
One of the main concerns to consider if you’re thinking about working with a discount broker is why they are offering a discount in the first place. In many cases, aspects causing a broker to offer a discount include lack of experience, lack of confidence, or lack of knowledge. This leaves room for error in one of the most important financial decisions of your life.
On the other hand, a full-service broker thoroughly understands the market and can accurately price your home listing, then successfully negotiate the best terms once the offers roll in. With a thorough understanding of real estate contracts, a full-service broker can negotiate for top dollar and favorable terms throughout the process.
Overall, the question shouldn’t be, “what is the commission?” Instead, consider where the transaction will leave you in the long run by asking, “what are my net proceeds?” A 1.5% commission reduction on a $500,000 home will mean you can save $7,500 up front. However, this savings is more than paid for by the benefits of working with a full-service broker such as improvements in purchase price, terms that help you avoid paying for repairs or home improvements, and terms that involve the buyer paying for some closing costs that are traditionally covered by sellers.
Trusting the sale of your home to a discount broker can result in leaving tens of thousands of dollars on the table once all is said and done. Instead, work with a full-service broker who is truly on your team. Together, you can maximize the return on your largest single investment.