Be wary of "Discount" Brokers

Reading real estate industry news you'd think there was a conspiracy by "full service" agents against "discount" agents and brokerages. What the press fails to realize is there are very real reasons why Buyers and Sellers alike should avoid these companies like the plaque. (see my previous post for how you can get your own discount with a full-service brokerage or agent).

I don't want to name names, but let's look at some of the models:

1. The agent gets paid a salary, not the commission. The company keeps a majority of the money, and gets away with this because they give their agents an office, health insurance, maybe a car, leads, marketing material and so on. It's like working at any regular 9 to 5 job, except they are Realtors. This company is a "discount" company because they "give back" or "rebate" 20% to 30% of the commission to the Buyer or Seller.

Great for you - right? Not so fast. Who does this company attract as agents? Successful established agents have their own offices, stationary, car, and plenty of clients. So they don't come to this company. Only brand new agents, or agents that have failed on their own come here. So if you Buy or Sell through them, you work with a rookie or "unsuccessful" agent. Now let's take a step further. Good Rookies eventually become experienced and successful, but at this point they realize they could double or triple their income if the company wasn't giving 25% away, and taking most of the remaining 75% for themselves. So they leave, thus leaving behind only the worst and newest agents.

2. Low flat fee, or very low commission - say 1% per side instead of 2.5% to 3%. Again, who benefits here? If the company can attract a large volume of clients, the company benefits, but the agents work three times as hard to match the results of full-service agents. So the good ones, you guessed it, they leave.

3. A new version tells Buyers to find the home on their own, and then call in to a "virtual" agent who will advise them and help them write up the contract. This company kicks back a majority of the commission to the Buyer. Again, the "virtual" agents are not well paid, and probably have no idea just how difficult it is to navigate the San Francisco real estate market. I'm guessing Buyers using these companies house hunt for months or years on end with unsuccessful bid, after unsuccessful bid, until finally they severly over pay, and their "savings" ends up being a financial loss.

To sum up, let me share one story:
I got a Listing after the Seller fired his "discount" firm because after 45 days there were hardly any private showings, and only about 10 people at the Open Houses. PLUS, and this is bizarre, the Open House agent showed up with his wife who was not in the business, and who just sat in the Condo all day. Meanwhile the agent put out his Bible in addition to property information. Now I don't care if this was in the Bible Belt of our country, homes are de-personalized so that ALL Buyers can see themselves living there including those with other religious beliefs. Either way, it was strange because the agent was strange, and probably could not get a desk in a full-service brokerage if he tried.

When I got the listing, my full-service marketing machine quadrupled the Open House and private showing traffic, and we sold it in 2 weeks for 8% over the asking price.

The last reason why we full-service agents don't like discount agents is that there are a myriad of ways of killing a transaction, or inviting law suits. If you WANT that home, and the discount agent messes it up, what then? You can't get it back when someone else buys it. And since California is the most litigious State in the country, the last thing I want is an unprofessional rookie putting me and my client's in harms way.

I didn't even touch on negotiation skills, the ability to accurately research a home's true market value, and so many other things earned through experience, dedication and skill that we (well, some of us :) bring to the table. The bottom line, there are real reason why I and you should avoid or be VERY wary of these companies.


  1. Anonymous6:39 PM

    Wow, this really seems like the biggest bunch of fluff I have seen in a long time!

  2. well, i'd be curious who you are so that I'd know the frame of reference for your comment... i could share numerous AND detailed stories to eliminate whatever it is that you think is "fluff". But one thing... the San Francisco market is very different from most of the rest of the country... maybe you don't know that? For example... during the dramatic downturn in so much of California, San Francisco has remained a Seller's market. Even I have lost out when offering on homes despite using every trick in the book (without resorting to over-paying) to get my client's the home.... a "rookie" doesn't know the tricks... so they have to over-bid in a dramatic way to have a shot at helping their Buyers buy. Fluff? No - and you'd know that if you have actively worked in the SF market for a number of years... this is a tough market... and experience counts for a LOT. I KNOW many great agents who left one particular discount firm... they cut their teeth in the less lucrative firm, then left. Who did they leave behind? I suspect the less than great agents who may cost their clients more than they save them... either in dollars... or in losing out on their dream home.