Tuesday, May 15, 2007

Discount Brokers

The CBS show 60 minutes aired a piece Sunday evening that is certainly causing a stir within the real estate community. But first let me clear up something that absolutely gets under my skin. The word REALTOR® is pronounced ‘REAL-tor’ NOT ‘Real-a-ter’. Tell your friends. Furthermore, a REALTOR® is someone who is a member of the National Association of REALTORS®. REALTOR®" is a trademarked term and should never be used synonymously with "real estate agent”. So now that we have cleared that up. I did not watch the show but feel inclined to throw in my two cents based on the flurry of blogs and emails I have read regarding the show. The CBS segment led by Lesley Stahl was supposed to examine the impact of online brokerages on the real estate industry. The show featured interviews with a representative from the now-defunct eRealty and the president and CEO of Redfin. Both of these companies are flat fee brokerages which are more commonly known as “discount brokers”. A discount brokerage’s philosophy is to give the real estate consumer full service at a discounted price. On the program they stated the 6% broker commission is “sacrosanct” among REALTORS® and the NAR feels threatened by these new online brokerage business models. They feel the NAR is pressuring the public to pay the full 6% commissions and is at the same time trying to force these online brokerage businesses out of the real estate industry thus limiting the consumer’s choices. Interesting that the Dept. of Justice and Federal Trade Commission released this report showing a 5.02% commission nationwide and still said commissions have been relatively inflexible. Leslie Stahl conveniently did not ask the National Association of REALTORS® to be a part of the program. NAR is America’s largest trade organization with over 1.3 million members. There are 2 main reasons for this.

1) NAR has consistently pursued minimum service laws for real estate agents across the country. Eight states, including Texas, have "minimum service laws" that require REALTORS® to provide a minimum level of service for their clients. i.e. If your home is listed with a REALTOR® all negotiations must go through your listing broker as it is unlawful for the seller to negotiate directly with the buyer’s agent. The discount brokerages certainly did not cheer when Gov. Perry passed this bill in 2005. Can you feel the love from this
discount broker’s website?

2) Real estate commissions are 100% negotiable (again, look at the
DOJ/FTC report). People have a plethora of choices when it comes to listing their home. These discount broker business models began popping up all over the country 3 to 5 years ago so I don’t understand the attack on commissions. Here in Dallas if you want to list your home in the MLS and get it on Realtor.com then go here. For $299 (plus the buyer’s agent commission) you’ll only have 1 picture and it doesn’t come with a lock box or a sign. Or you can go to this brokerage and for as little as $495 (plus the buyer’s agent commission) you can get your home in the MLS and a “for sale” sign but no Realtor.com presence.

So if I listed my home for $200,000 in the MLS for $495 and offered a 3% commission to the buyer’s agent I would save $5,505. But I would have to meet every showing since there is no key box. And with only 1 picture on the internet people are passing right by it in their nightly internet searches. Those looking for homes on
Realtor.com expect multiple photos so when a property only has 1 photo, chances are they’ve already moved on to one of the other 68 listings with multiple photos. And with no sign in the yard weekend drivers casing the neighborhood for new listings have no idea it is on the market. One can only assume a home listed this way will result in many months on the market. When you calculate your monthly mortgage, taxes, etc. the $5,505 you saved by listing with a discount brokerage doesn’t seem like a savings anymore after 5 months on the market. Check out this listing. $2.9 million with no pictures and a poor description. This isn’t service but it’s what the consumer paid for. Have you ever heard of the old phrase, “You get what you pay for?” However we’re not talking about the discount tile guys you called in the Yellow pages to retile your bathroom for $500, did a terrible job then spent an additional $1,500 having it done right. We’re talking about what is most likely your largest financial asset EVER. So although I don’t understand why a person who obviously has the business sense to own a $2.9 million home would want to try to sell his home without pictures and a limited amount of service, I do understand it is his choice to do so. Click here for a true story and a perfect example how a discount broker can actually lose you money.

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