Discount Brokers: Do You Get What You Pay For?

May 28, 2010

Residential

Discount Broker's vs. Full Service Broker's

Discount Broker's vs. Full Service Broker's

Discount Brokers:  Do you get what you pay for? The answer, as with many things in life is, it depends. It is very easy for an agent at a full-priced broker to use the phrase, “You get what you pay for,” when attempting to downplay the credibility of a brokerage that offers rebates to buyers and discounted commissions to sellers. As an ex-agent of a full-priced broker I was red-hand guilty of the same offense. This unfounded argument seemed logical enough, but what I didn’t realize is that I was guilty of a hypocrisy that only became clear when I decided to move my license and began to interview other brokers and their business model. What I have come to realize is something akin to my opinion of the Golden Rule. I believe that the Golden Rule is actually narcissistic in nature and is in need of re-writing.

The Golden Rule

Let me explain. The Golden Rule states: Treat others the way YOU want to be treated. The problem is that others may not want to be treated the way that you do. To assume that treating others the way that you want to be treated is somehow a benefit to them is naive at best.  In my opinion The Golden Rule should read like this, “Treat others the way that they want to be treated.”  Drawing on this belief I hope to change the process of representing a client in a real estate transaction.

Business Models

It is true that many discount brokers cut their services in order to justify the reduction in compensation that they receive. With a business model like that, it is easy to justify the the question in the title of this article. When it comes to full priced brokerages most of them typically have developed expensive machines for handling all types of client interactions with the expense report to prove it. As such these full priced brokers spend so much money on polish and have such a high-overhead that they cannot possibly attempt to give a discount or rebate to their clients and hope to stay in the black. The choice for the client is, full-service, full-priced broker or reduced-service, discount-broker; leaving a savvy buyer to decide between the best of two options.

Client Needs vs. Fluff

Besides the two business models previously mentioned there is another to be considered. To quote the copy from a sign I have recently seen, “Full Service or Discount Pricing, Yes!”   There are two ways to achieve a business model that offers full service at a discount price. Only one of them will provide enough of a balance to create a lasting business in a time where large brokers are rapidly absorbing the independents.

The first would be to copy the full-priced business model of cranking out tons of swag and high-overhead practices and taking the client’s discount out of the Agent’s compensation. This may work in the short term, but one big risk over time is keeping the agent motivated to provide the full service effort when their compensation is drastically reduced. It is clear why this model would fail.

The second, and the one that makes the most sense to me, is to cut out the fluff. Streamline the process, and focus in on what a client actually needs to achieve their goals in a cost effective manner. Then, after significantly reducing the cost of doing business, pass a portion of the savings along to the client while simultaneously providing a full service experience.

Which Would Seller’s Rather Have?

I ask this question to any potential buyer’s or seller’s out there, and also to any agent that has worked with enough clients to know.

As a Seller which would you rather have?

  1. A 10-page color brochure with a golden seal that plays a song when you open it, scented by a Gucci fragrance and pay 6% commission, or
  2. A 4-page color brochure, professionally photographed and straight forward, and pay only 4.5% commission

Knowing that a vast majority of all brochures end up in the trash five minutes after the buyer gets home from their tour, is a brochure that rivals Vogue magazine really necessary or just wasteful? There are so many brokers out there that feel the need to pass out so much wasteful material that never gets looked at more than a glance just so that they can project affluence. The wasteful ways that they use these materials could inspire another article all together.

Million dollar listing? Okay – step up the brochure! This is a no-brainer and in this case a savvy discount broker will make an exception as the need arises. The point I’m trying to make is that wasteful business practices are one of the many reasons that most brokerages cannot wrap their heads around the full-service discount-broker mentality even though it is viable.

Which Would Buyer’s Rather Have?

  1. A stapled packet of black and white print outs for each of listings that you will be visiting on a given day and receive a 20% rebate off the commission when you close, or
  2. A bound, full color, laminated booklet with fancy graphics, your name, a photo of your agent and a cup of coffee with no rebate when you close

These two examples are just that. The list of high-overhead business models and wasteful business practices could go on and on. The question I’m trying to raise is this, are these things really important to clients?

Referencing my modified Golden Rule, are we offering clients services that improve the buying/selling process or are we offering services that we think will improve their experience? I have not had a single client that would rather pay more to have a fancier experience and I doubt there are many buyer’s or seller’s out there who would disagree.

Back To Basics

I feel it is time for Realtors to get back to basics. Finding out what the goals, needs, and expectations of the client are and then meeting and exceeding them through a client-focused experience. With the onset of social media and the power of electronic marketing, it is possible to reduce wasteful practices and pass the savings along to the client. My advice to would-be buyer’s and seller’s is this, do yourself a favor and ignore the negative hype traditionalists spin about a discount-broker. When you’re considering any professional representation it is very important to shop around. Interview a full-priced broker or two, then interview a discount-broker or two, then make an informed decision based on your experiences, not what you read in a blog; mine included.

We would like to thank Robertson Illustration and Design for kindly sharing today’s photo via the Creative Commons’ License.
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About Randy Whiting

Randy Whiting is a respected Chicago real estate agent at Lucid Realty a full-service brokerage that offers discounted commissions to sellers and rebates to buyers. With plenty of experience on both sides of the transaction and all type of sales be they conventional, FHA, short sale, or foreclosure; Randy has an experience-driven comfort level that usually rubs off on his clients. In addition, his experience working with developers allows him to provide an in-depth understanding of new development and gut-rehab properties as well as re-sales. Outside of his work as a realtor, Randy spends his time writing and performing music and enjoying the outdoors as often as possible. You can contact him at RWhiting@LucidRealty.com

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One Response to “Discount Brokers: Do You Get What You Pay For?”

  1. Gary Lucido Says:

    It took years for consumers to embrace discount stock brokers. Today most people do but my 84 year old mother still pays her stock broker several hundred dollars per trade while I get better service for $8/trade at Fidelity.