Discount Listing?

Question

What do you think about going with one of those discount brokerages - where you pay for the MLS listing but that's about it? On the one hand it seems wise if your market is strong and your house is desirable and you can feel comfortable that you and the attorney are all that are necessary to take it from contract to close. On the other hand, I have heard that other Realtors resent that and will steer their qualified buyers away from it. And if you don't have another good method of contacting buyers directly (e.g., ads, internet postings, signs, networking, etc.) then you might just hear crickets chirping instead of the sound of coins clinking in your little jar.

Part of me thinks that as I am building a spec house, I should wait until about a month before completion and then start to advertise it myself as a FSBO, offering 3% to a Realtor to bring a buyer. Then obviously if this is just totally failing, I would list with a Realtor about a month later. However, perhaps there is that interim idea of putting a MLS listing up for what, $1000, and saving about 3%? But if that is going to backfire I don't want to do that. Maybe a listing only for $1,000 and an additional 1% to the buyer's agent - that still saves approximately $7,500, and might get the agent to forget about any concern they had that I was hurting the real estate profession, because, hey, money talks.

Shannon M. · Answer

Disclaimer: I am an agent that works with several active investors besides my own investments. Like most things in life "it depends" If you have an average residential agent that is not used to working with investors then I am not sure how much better than the discount or flat rate route they are. However, if you can find a great agent he or she will become a member of your team and will be worth every penny to your business. A great agent for an investor is not necessarily the team with the biggest advertising budget. For an investor the best agent will be the one that totally understands your criteria and style, that instinctively knows if a deal is worth bringing to you and understands how important a short time on market is to your profit margin. This agent is not always easy to find. You are looking not only for a certain skill set but also, to some degree, a personality match. Sometimes trial and error is the only way to find this component of your business. Best of luck.

Erik Hitzelberger · Answer

As an agent, I have to be very careful in discussions about commissions to avoid the appearance that there are 'standard charges,' etc. There are not. I will stick to my own very specific experience. In addition to selling my own properties, I list properties for retail clients and other rehabbers. With each property, I consider the amount of time I am going to spend, the condition of the property, the potential for additional business and a host of other factors when negotiating the rate I am willing to work for. This is a business decision on my end. I have never, ever, ever (not even once) recommended shorting the buyer's agent. Regardless of the condition of the home or any of the factors I mentioned, his or her effort is unchanged.

Jason Merchey · Answer

Roger that. When you say 5x the commission, do you mean that a Realtor would perceive a discount brokerage to mean that since they are the only Realtor involved they are going to be doing up to twice the work, is that what you're saying? That makes is sound like they would poo-poo the discount brokerage listing not becuase of trying to protect the field of real estate agency, or due to some kind of indignation, but simply because they read that as "more work for me."

Edward Burns · Answer

Negotiating commissions when listing a property is a common and acceptable practice. There are several members here that never pay 6% or more for commissions. Therefore you are NOT disrupting the status quo and the listing and buying agents will work with it. Now with low price property or less desirable property, negotiating a lower commission is harder, but still can be done. A buyer agent will NOT skip over your property with a standard contract because of a reduced commission. They might with a discount brokerage. Remember real estate agents are just like the rest of us, wanting the most for the least amount of effort. A quick sell earning 2.5% commission is better than earning a 3% commission that requires 5x's the amount of work.

Jason Merchey · Answer

OK I hear you. So you believe that it is less likely to backfire for me to have 5% total commissions (and saving 1%) than it would be to have one buyer's agent getting a full 3% but then using a flat fee brokerage for the MLS listing (and saving 3%)? If so, that would be interesting, because the buyer's agent would be making .5% more in the one case and yet would still have a moral problem with the arrangement if what they're doing is steering their good client away from the listing.

Edward Burns · Answer

That is also negotiable between you and the listing broker, but would usually be a 50/50 split between agents. You are the one contracting for their services, and have the right to determine what you are willing to pay for the service. By the same token the listing agent can refuse the listing if he feels it is unreasonable. Negotiate just like you would when buying a house or car. You don't get if you don't ask. Again, if the property is in good to excellent condition, price fairly, and located in a hot neighborhood, you should have no problem. While they are used to the standard 6%, a good agent can determine the amount of effort he(she) needs to put into the deal to make it work. So if it appears to be a quick easy sell for them, they will be more willing to work with you.

Jason Merchey · Answer

Is that 2.5% to each, or 2% to listing and 3% to buyer's?

Edward Burns · Answer

I would negotiate with a full-service listing agent for a total real agent fees of 5%. If like you say, it should be an easy sell, they should welcome the work. While not saving the $7.5 K or $6.5K you will still save probably $4K (I guessing based on your numbers) and still get good service. If you list on MLS with a discount broker, and buyers are steered away from you, you now have a stale listing that has cost you holding fees in the meantime. Switching then to a full-service agent might still carry animosity from some agents with it. In addition, based on your numbers I am guessing the house is in the price range of $400-500K so every month it goes unsold, you are probably at over $1K in carrying cost.

Jason Merchey · Answer

Stephen, I totally get that. I know the adage that "a person who represents themselves has a fool for a client." But eventually at some point you get to a place where you can do for yourself what a pro can do. People who put on their own roofs, fix a plumbing leak, paint their house, or take herbal supplements for an ailment are basically taking responsibility for the job they are doing. It's human nature to want to cut out a middle-man that has reached the point of irrelvance. I mean, personal shoppers, limo drivers, and home inspectors become less valuable if you feel you can do those things yourself. It's not that I want to begrudge a person from making their living, but by the same token, do I need to include them in order to make the transaction work successfully? Maybe or maybe not. It's theoretical and on a case-by-case basis. But that's one of the things I really want to get at with this thread - am I shooting myself in the foot because Realtors resent the use of a budget brokerage because they are protecting their territory - or would they be fine with earning their 3 or maybe 4% and letting the profession take care of itself. With Realtors it is often about reward - and as they say, "every man has his price." Not that I'm talking about an unethical act, I'm just talking about whether 3% or 4% would help a Realtor overcome qualms they might have about the discount brokerage. I think that is where the Internet can come in handy, and demand, because the more I can directly reach qualified buyers, such as Zillow or Craigslist, the more they will tell their Realtor what *they* want to go see - thus making it much harder for a Realtor who is offended by a discount brokerage to steer a client away from my house.

Stephen S. · Answer

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