What is the difference between a Full Service and a Discount real estate broker? I’ve been itching to write about this for a while because I feel that you, as a homeowner, deserve to have a good understanding of what types of listing services you might encounter if you’re thinking of selling your home.
Going way back into the days of Grizzly Adams and professional wrestling on TV, I still remember seeing commercials from one of the biggest real estate franchises in the country (they always had the huge sign, remember?). I’m sure there were several others as well, but only one sticks out to me. If you wanted to sell your home, you’d contract with one of these “traditional” real estate companies to sell and in return, pay them about 6% of the purchase price. They’d pop their sign in the yard, start picking up the phone and making calls, deliver flyers to neighboring offices, and network with agents right down the hallway from within their brick and mortar office. And if someone was interested in your home, they’d always deal directly with the listing company. They also gave you “full service” meaning that they’d advertise your home, negotiate on your behalf, and walk you through the transaction from contract to close. Upon closing, you’d pay the listing company the traditional 6% fee. (6% of gross sales price).
Then, in the early 1990s, an interested buyer could have their own real estate agent representing them, working on their behalf, and helping them purchase the home that was marketed by the listing company. Thus, the buyer’s agent was born. The listing company then paid a portion of their 6%, or agreed upon fee, to the buyer agent’s company and kept the remainder. Buyer agency is still in effect today and commissions paid by homeowners to the listing company are often 5.5%-6%, with the buyer agent’s company receiving about half of that. If there is no buyer’s agent, the commission technically stays with the listing company and may or may not be negotiated down. It’s important to note that ALL commissions are negotiable, by the way. Here’s a graphical breakdown of how the traditional real estate commission model works.
I know you didn’t come here for a history lesson, so let’s break down the different types of services that are available if you were thinking about selling your home today.
If you polled a thousand Realtors, I would imagine the vast majority would agree that “full service” in real estate means:
- Helping you decide on a list price and preparing a CMA (comparative market analysis)
- Helping you fill out paperwork
- Giving you at least some advice on preparing your home
- Marketing your home to other agents and consumers
- Facilitating showings of your home
- Negotiating any offers on your home
- Handling all the details from contract to close (transaction management)
With full service, you’ll often see a commission of 5.5-6% charged to the seller (always negotiable), as much as 7% or as little as 4-4.5%. I’m a big believer in full service in most cases simply because there’s so much that can go wrong along the way, legally speaking, and having the right guidance can be crucial. Here’s the kicker though.There’s a huge difference among full service listing agents in terms of their ability to properly help you prepare your home as well as their marketing capabilities. Those things alone can make the difference in how much your home sells for, how quickly it sells, obtaining a more secure and capable buyer, etc. The ability of an agent to help you prepare and market a home can mean thousands of more dollars difference in your bottom line. If you feel that full service is what you desire, make sure you SEE examples of their marketing, read or hear testimonials or reviews from their past clients, listen to your gut, and beware of what feels like a sales pitch. Also, while experience matters, I’ll take an agent who has an eye for details, an understanding of pricing, and a good knowledge of marketing to today’s buyer over a ‘veteran’ who still puts all their efforts into open houses or an emphasis on what company they work for any day.
Somewhere along the lines, another real estate model came along in which some agents would offer to charge less in commissions in exchange for fewer services but at least still place the home on the MLS (multiple listing service). Some of the terms you’ll often see are “discount” or “limited service”. And discount brokers may simply charge a lower commission or a flat fee. There are several reasons a homeowner might opt for this type of service:
- They feel they are knowledgeable enough to do it themselves
- They feel real estate agents charge too much
- They don’t see the value in full service or what agents supposedly do
- They don’t have much equity and simply cannot afford the traditional 5.5-6%
- They may believe that putting their home on the MLS is the only thing needed
Are their feelings valid? Well, sure they are. And I like to save money like anyone else. Additionally, there’s a lack of consistency amongst full service agents out there, and I don’t blame a consumer for wondering what they’re actually paying for or for questioning whether or not paying for full service is worth it.
However, remember….a GOOD, full service Realtor can make a huge difference in your bottom line as well as some of the intangibles. My sincere suggestion would be to make sure you speak with a good full service Realtor before going the discount route. It costs nothing to have a conversation.
FLAT FEE COMMISSION
With flat fee commission, you pay the listing company a flat fee to sell your home, period. They may or may not charge an additional upfront marketing fee, and they may or may not provide full service. Until the last few years, most of the flat fee models I’ve seen offer an a la carte type of system where you pay a few to several hundred dollars to get your home on the MLS and then you handle the rest. Lately, I’ve seen a few other real estate companies offering to give you full service in exchange for a higher flat fee such as $2500-3000 for instance. But don’t forget, they typically still tell you in small print that you also have to pay the buyer’s agent (typically, a recommended 2.5-3%).
Whatever type of agent or service you use, I want to make sure you’re aware and educated of some of the choices out there. Some of you to this day, still aren’t aware that commissions are negotiable and not ‘set’. Well, they are. But make sure you know what you’re getting for your money.
In summary, if you want your home sold and you want all the bases covered, best chance at getting a higher price, a stronger buyer, fewer headaches, etc, just reach out to me and have us out for a free consultation. I know what other agents offer, and I know how our capabilities compare. An hour or so with us is a no-lose proposition for you, so pick up the phone or shoot me an email, and we can arrange a free, no-pressure conversation.