The Ultimate Guide To Discount Real Estate Brokers
Table of Contents
- Types of Discount Real Estate Brokers
- Are Discount Real Estate Brokers A Scam?
- Do Discount Real Estate Agents Offer The Same Service As Traditional Agents?
- Questions to Ask Before Signing An Agreement
- Alternatives To A Discount Broker
There’s no doubt about it, buying and selling a home can be expensive!
To start, in the US the average cost to sell a house is over $15,000. This number includes the closing costs, preparing the house to be sold (staging, inspections, repairs, etc.) and the real estate agent fees.
No matter who you are or what you make a year, that’s a lot of money. And it’s even higher in the more expensive areas of the country.
By far, the biggest part of this cost is the commission paid to the real estate agents.
The traditional way to sell a house is to have a buyer’s agent and a selling agent. The buyer’s agent is typically free to work with (for the buyer) with both agents receiving their commission from the seller when the house closes.
Today, the industry standard is for both the buyer’s agent and the selling agent to receive an average of 3% each. This means that 6% of the cost of the home being sold is paid to real estate agents.
As an example, if a house sells for $275,000, then around $16,500 is going to be paid in real estate agent commissions, with the buyer and seller agents each receiving 50% of that $16,500.
The entirety of that $16,500 comes out of the purchase price of the home and is money that you would have otherwise been able to keep if no real estate agents been involved in the transaction.
This is a lot of money being siphoned out of the sale of your home and can be especially painful if you haven’t lived in the home for very long prior to the sale.
With little equity, you generally wouldn’t have that much left over after you pay off your original mortgage with the proceeds of the sale.
It’s also a lot of money if you’re close to paying off your mortgage or have done so already and had been counting on the sale of the house to fund your retirement, purchase another house, or invest something else.
Either way, 6% on the sales price of a house is what is paid in commissions to real estate agents, with the amount paid to both agents increasing as the price of the house increases.
Enter A New Era in Real Estate – With Options Galore
The digital age has shaped how houses are being sold and marketed both online and off.
New technology, smartphones and a range of various “Do It Yourself/List It Yourself” real estate websites and platforms are now available to sellers.
Yet, despite all of the progress that has been made in the world of real estate, the “old way” of handling the listing and selling of property is still the majority.
But with the large amount of instructional videos, technology and websites to help home owners sell their house easier (like this one), the alternative real estate broker model is disrupting the industry.
So the good news is that if you want to save money when selling your house, you don’t have to do it the traditional way.
It is entirely possible for you to potentially save thousands of dollars in commissions when selling your home or property by hiring a discount real estate broker.
With discount real estate brokers and agents becoming easier to find, some offering a la carte services and budget-friendly options, you now have a number of avenues to explore when deciding on how to sell your house.
Types of Discount Real Estate Brokers
Real estate commissions can be structured in a number of ways, with the traditional model resulting in a 50/50 split between the listing agent and the buyer’s agent.
Asking for a discount from the listing agent is an option and worth asking, as this could effectively and substantially reduce the amount of commission paid when the house is sold.
But most traditional real estate agents and brokers guard that commission and don’t want to negotiate the amount they get paid to represent you when helping you buy or sell a home.
If you want to go outside of the traditional model, there are other options out there and we’ll be taking a closer look at in this guide.
The types of discount real estate brokers include:
- Low Commission (Percentage) – a low commission broker who offers a greatly reduced commission percentage when selling your home
- Low Commission (Flat Rate) – a low commission broker who offers a flat rate when selling your home
- Hybrid Real Estate Brokers – hybrid model that is a combination of low commissions and flat rates when selling your home
- 2 for 1 – 2 for 1 model that is based on the agreement of buy a house with the agent and they will sell yours for free
- No Commission (Flat Fee MLS) – The no commission model that really means you’re selling the house yourself but there are a few valuable MLS listing services offered by a real estate agent
- Buyer Rebates – The buyer rebates model where real estate agents agree to refund a portion of the commission they receive to the buyer
Below we will go into each of these options in more detail to help you decide if they are an option you would like to utilize.
1) Low Commission (Percentage)
Often called the 1% Listing Broker (sometimes the percentage is 2%) this model offers to charge the seller between 1%-2% of the sale of the house, with the money going to the listing broker.
The buyers agent commission is still typically the same 2.5%-3%, but with this model you end up paying a much smaller amount as compared to the percentage generally required with full or “regular” commission brokerage.
Best of all, the reduced commission rate is set and made available for review upfront, so there won’t be any surprises at closing.
Given the reduced commission rate, one may assume (often wrongly), that you will receive lesser service from the brokerage. But this isn’t necessarily true if you choose one carefully. These discount real estate brokers will typically still provide full service to the sellers.
Low or reduced rate commission brokers are often able to offer the same (or similar) services as the traditional sellers’ agents.
They will generally include and conduct a comparative market analysis to make sure your house is priced right, they will negotiate the sale, they carry insurance to cover any mistakes made and they make sure to list the house on MLS and other real estate sites.
Sounds like a good deal right? That’s because it often is.
But if they handle everything that traditional agents do, why would they offer a lower commission upfront?
To get more business and they understand how to sell a house in a streamlined way that allows them to handle a lot of listings at the same time.
What they bank on is a lower margin when selling clients homes at the tradeoff of closing more deals.
They’re often able to offer lower commission rates because technology makes it easier for the sellers’ agent to sell a home faster and with less effort needed on their part.
For example, once the details are all put together and the house is 100% ready to go on the market in a way that will cause it to sell, it takes little extra effort to list the house on the MLS and then share it with brokerage websites and the real estate portals like Zillow and Trulia and others.
2) Low Commission (Flat Rate)
Flat Rate Real estate agents offer to sell a house for a flat, fixed dollar amount, often ranging between $3,000-$6,000, or another agreed upon number depending on the value of the house or service level of the real estate broker in question.
As the name suggests, there is no commission in the traditional sense, just a flat, predetermined fee.
The level of service that is offered depends on the agent or broker being hired and can vary greatly between providers. So if you’re going to go this route, be sure to review the contract closely so you understand exactly what they will (and will not) do for you.
Depending on the agent or broker, the services may include such services as the initial consultation about the house, professional photography, yard signs, scheduled showings, marketing and more.
A flat rate real estate agent will also list the house on the MLS, which includes sharing the listing information to thousands of connected databases and websites and taking advantage of the internet for distribution and get the highest level of visibility for the listing.
Sometimes you will be required to pay part of the fee upfront. This fee is used to cover the initial marketing and administrative expenses incurred by the agent or brokerage. The rest of the flat rate will be due on closing if the entire amount was not paid upfront.
Bear in mind that in this case you will still be responsible for paying the buyer’s agent fees and is typically the same 2.5%-3%.
The biggest question to ask this type of discount real estate broker is how much the fee is that they will charge and when is the fee due.
3) The Hybrid Model
Brokers and real estate agents may offer variations of a low commission percentage, combined with a low commission flat rate.
The Hybrid Model has been around since the late 1970s and originally came about when agents and agencies negotiated fees and services, usually with higher priced houses.
This model has evolved and can take on many variations.
Two popular variation is to charge a percentage up to a certain amount and a flat rate after that amount or vice versa, charge a flat fee and then a percentage after a certain amount.
If you are considering this model, pay careful attention to the details of the agreement for commission being paid so you don’t have to pay an amount that you thought would be lower.
Regardless of the options you choose, the basics of using a seller agent are still there:
- the house is listed on the MLS and thousands of other websites
- the contracts and legal necessities for that state are handled by the agent
- the general marketing of the house will be carried out
4) The 2-for-1 Model
As with most real estate sales, the seller pays the agent costs involved in the transaction. In the case of the 2-for-1 model, the listing fees are eliminated from the equation.
The 2 for 1 model involves the real estate agent offering to sell your house for free, with the stipulation that you buy a house with them and they collect a commission then.
The seller receives free representation and marketing, the house is added to the MLS and all of the other real estate websites, professional photography and sometimes videography is done, yard signs are provided and the usual real estate contracts executed.
The big hook here is the seller then becomes the buyer of their new home and uses the same real estate agent to purchase their next house.
A seller that is both selling and buying a home can save a lot of money with this model and will most likely avoid paying any commission at all.
The 2 for 1 model is also the least common type of discount real estate broker.
5) No Commission (Flat Fee MLS)
The flat fee MLS deal, also known as a “no commission” deal, is an option for any seller who wants their house listed on the MLS as well as real estate databases and websites but doesn’t need or want the additional services offered by a real estate agent.
With a flat fee MLS structure there is no listing commission and the house can be sold as a “For Sale By Owner” listing.
The low flat fee fee that is paid represents the cost of putting the property’s information on the MLS and other public real estate websites.
You purchase this type of listing right from your laptop or mobile device and get started right away on working with your broker.
As with other MLS listings, the house will stay on the MLS for the amount of time agreed to in the listing agreement between the seller and real estate broker.
With this service, the home seller will act as the “selling agent” and will be responsible for taking care of the contracts and marketing.
This includes yard signs, advertising, photography and final negotiations with buyers and buyers agents.
The seller will also still be responsible for paying the buyers’ agent fees.
Bear in mind that this type of deal will require you to handle a lot of heavy lifting involved with the sale.
That said, this type of deal may be an excellent option for you if you have the time and knowledge to do that extra work and are confident in your ability to handle the marketing and sale on your own.
This is usually the best option to save the most amount of money.
6) Buyer Rebates
Buyer rebates are also known as “commission rebates” and occur on the buyer’s agent side.
With these types of deals, the real estate agent working with the buyer will return a portion of the commission to the buyer.
The buyer can use this money toward their down payment, closing costs, sometimes to buy points on the mortgage, or in some cases may take the rebate as cash at the closing (if the bank allows it).
Under current legislation, buyer rebates are legal in 40 states. It’s a good idea to check the state website for real estate regulations to see if this is an option for you.
This type of discount real estate broker usually doesn’t impact the seller because they still have to offer the same amount they normally would.
Are Discount Real Estate Brokers A Scam?
No, discount and alternative real estate broker services are not a scam. In fact, they are far from it.
Discount brokerage options almost sound too good to be true but that’s only if you’re not familiar with the way the internet and technology have changed the way we buy and sell houses.
And, just as with any business, there will be good and bad companies and good and bad agents.
Commission rates are not regulated by any agency or legislation. As such, they’ve always been open for negotiation.
Yet despite the options available, most individuals don’t realize that they can ask for a reduced rate or explore discount brokers as an alternative.
It’s not something that’s advertised or widely known by the average person.
Yet, despite the good deals that can be had, there are potential problems or challenges that can arise when using discount real estate agents and you should always do your research in order to be well informed before making a decision.
For example, some discount models rely on the volume of houses they sell to make money, resulting in services that may not be quite as robust or beneficial as what you might get if you pay an agent the full commission rate.
You also might not get as much hand-holding either and that’s important if you don’t know what to expect when selling a house.
Discount real estate agents and services are disrupting the industry, largely because they are taking advantage of the internet and technology to a greater end.
Automation and digital marketing trends have aided them in reducing overhead and marketing efforts to attract buyers for listings, affording them the opportunity to offer services at reduced rates.
As in all industries, it’s important that you understand there will be good and bad service providers, but if you do your homework you’ll can find a discount real estate agent option that will save you money and still provide the level of service you are looking for.
Do Discount Real Estate Agents Offer The Same Service As Traditional Agents
Some do and some don’t provide the same level of service. It depends on the business model they’re using, their ability to be flexible with their services and fees and what services they actually want to offer.
If a discount real estate agent is advertising as “full service” then they will usually offer the same services as a traditional real estate agent.
But if the discount real estate agent is offering a “limited service” then they will be eliminating some of the services from their offering to the seller in order to justify the reduced rates.
These services may or may not be important to you, so pay attention.
The table below will break down the services typically offered by Full Service and Limited Service real estate agents.
|Real Estate Service||Full Service Listing||Limited Service Listing|
|Advise seller on preparing home for the market||Yes||Maybe|
|Hire a professional home stager||Maybe||Maybe|
|Hire a professional real estate photographer||Maybe||Maybe|
|Advise seller on a pricing strategy||Yes||Maybe|
|Provide a key lock box||Yes||Maybe|
|Provide a for sale yard sign||Yes||Maybe|
|Market to buyers agents by listing property for sale in local MLS||Yes||Yes|
|Schedule showings for the seller with buyers and buyers agents||Yes||Maybe|
|Present and explain offers to the sellers from buyer and buyers agents||Yes||Maybe|
|Advise the sellers as to the merits of an offer to purchase their home||Yes||Maybe|
|Assist the seller in negotiations such as counter-offers and offer acceptance||Yes||Maybe|
|Navigate through the home inspection and negotiation process||Yes||Maybe|
|Work with buyers agent, buyers and sellers to navigate through the escrow process||Yes||Maybe|
|Work with attorney and escrow companies to successfully close the sale of the home||Yes||Maybe|
As you can see, there is a difference between the two and it’s important that you know what is or isn’t included in the services being offered by an agent before signing an agreement.
Questions to Ask Before Signing An Agreement
The Listing Agreement is a contract. It is a legally binding agreement that gives the real estate agent or broker the right to sell the home and binds the seller to paying a commission.
Therefor it is prudent of the home seller to read the listing agreement carefully and find out exactly what the expectations are of both the home owner and the listing agent/brokerage.
Questions To Ask Before Signing a Listing Agreement With a Discount Real Estate Agent:
- What is your experience?
- How will you determine the value of my home?
- How will you market my home?
- How will you communicate with me?
- How much commission is to be paid?
- Is there an exclusive right to sell?
- How long will the listing agreement be in place?
- What specific duties will the agent be responsible for?
- How will disputes be handled?
- Representations expected on the seller/owner side?
- Will you be allowed to cancel the agreement?
Alternatives To A Discount Real Estate Broker
After careful consideration, you may have decided that a discount broker isn’t a good option for you.
Don’t worry we have you covered, below are the additional alternatives to a “discount broker” that you can explore.
FSBO – For Sale By Owner
The FSBO option involves you, the seller the responsibility of handling all of the responsibilities of selling the house. Including but not limited to: inspections, appraisals, showing, negotiating with buyers and marketing.
Because your house won’t be listed on the MLS, you will have to do some creative marketing on your own.
Many For Sale By Owner Sellers Do the Following:
- Put up a yard sign
- Create marketing material
- Take photographs of the home (inside and out)
- Create a video walkthrough
- Stage the home for viewing
- Set up and run open houses
- Take and handle walkthroughs and appointments with prospective buyers
- And lots more…
Creative marketing efforts may also include listing the house on do-it-yourself real estate websites and community sites such as:
- Zillow: the leading real estate marketplace where people, including real estate agents, can list their house or property and be found online by those who are looking for a house to buy.
- Craigslist: a classified ads website with sections for jobs, housing, for sale, items wanted, services, community, gigs, resumes and discussion forums. Be warned, though, that when using this site you will have to list your house on every state and in each “region” section for that state.
- Facebook Marketplace: it’s where users can arrange to buy, sell, trade, rent items and homes from others in their area. Again, like Craigslist, be aware of how the house will be listed so that it will appear in the search results correctly.
Further Reading: If you want to know more about selling a house For Sale By Owner, we have a home selling guide for you to read. Check out the link below for the exact steps to correctly sell a house by owner.
Selling to a We Buy Houses Company
We Buy Houses companies are legitimate real estate businesses.
And, just as with any real estate transaction, there are legalities involved. And taxes. And marketing. And home inspections. And all the things that come with buying and selling a house.
We buy houses companies eliminate a lot of the hassle with selling a home.
But be prepared to get far less than the house value though, as most of these people are investors and need to factor in costs for updates and then a healthy profit to sell the house when it’s ready.
Further Reading: If you want to know more about selling your home to a “We Buy Houses” company, check out our article below that has everything you need to know.
Using a Traditional Real Estate Broker
If discount and alternative home selling options don’t seem like a good fit, you can always go the traditional route with a regular real estate broker or agent.
As we covered earlier, the bulk of the costs of selling a house this way is the commissions paid to the seller agent and the buyer’s agent. So, if you’re trying to save money, keep in mind that there are some things you can negotiate.
All listing agreements have legal clauses, including the following:
- the initial list price of the house
- the term of the listing agreement – how long the contract lasts
- the commission you agree to pay the broker for selling your home
- the length of time during which your broker will be able to collect his fee after the listing agreement expires (yeah, many people overlook this part and it can cost you money)
- the amount your broker agrees to pay to any other agents or brokers for showing and selling your home.
You want to sell your house. You want to save money and time but don’t want to do it all yourself. You want the most exposure for your house at the least cost.
And most of all you want to have more money in your pocket when you finalize the sale of the house.
This is why choosing a discount real estate broker or an agent is a good option.
You save money, you don’t have to do all of the selling yourself and you come out ahead.
Have you used a discount real estate broker or consider using one? Tell us about your experience or drop any questions you may have for us in the comments below!