Why Discount Brokerages do a Disservice to Sellers

Dated: 06/26/2019

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Why discount Brokerages do a disservice to sellers

These 'savings' are depriving home sellers of the very thing they are paying us for: exposure and buyers
I am all for saving money. For instance, I take Uber X when needing a ride to my favorite local restaurant. I buy generic medication at Rite Aid when given the option. And, on occasion, I order the well vodka at my favorite cigar bar.

All these things, in my opinion, are not only smart, but also have short-term repercussions. After all, if I don’t like the car that Uber X sends me, I am in and out in 15 minutes.

If I don’t feel better with my generic medication, I can buy the brand medication at my next purchase. And, if my head tells me that the well vodka leaves me not feeling so well, I can switch back to Grey Goose at any time.

The difference with discount brokerages

The same thing cannot be said, however, for hiring a discount brokerage or what I would call a “limited-service brokerage firm.” I say that because, as referenced in another column, “the concierge agent,” it is our job as professional and experienced concierge agents to commit 100 percent of our focus to making sure our sellers have the best representation.

This means committing to service and capital, working well with other agents by making it as easy as possible to show our listings and, more importantly, encouraging other agents to have their clients make a respectable offer to us.

For all of this, we are well-compensated, and I make no apology for it. That is, as we know, in our industry one of the operating expenses that comes out of our paychecks is the costs for us to properly market our properties for sale.


And yes, I said a 12-month period because in today’s market, it would not be wise to take high-end luxury listings for anything less than 12 months due to excess inventory and the extended market time.Currently, it is not uncommon to pay as much as half a percent of the list price for the marketing of the property. So if you are listing a $1 million property, marketing usually exceeds $5,000. Or a $10 million-plus property can easily cost around $50,000 over a 12-month period.

That, however, is why I find it offensive when new companies come along and offer “limited services for a flat-fee of $3,600.”

What’s missing

What these “seller saviors” fail to tell you is that their enticing fee of $3,600 actually provides a disservice to the seller for two big reasons:

  1. The majority of the profits go to the franchise, which in turn leaves the listing agent with a penny-poor budget to properly market the property.
  2. The business model of such companies only pencil out if the listing agents secure their own non-represented buyer to make their commission on the buying side of the deal. It’s a slippery slope to dual agency.

That leads me to ask a very important question: “How are these savings best for the selling client?”

The answer: They certainly are not. At every angle, these “savings” are depleting the seller of proper exposure and available buyers, which goes against what we professionals stand for.

Let me explain my deep concern over these matters:

‘Savings’ concern 1: Penny-poor marketing

If you were to put a house on the market today in my territory of Newport Beach/Laguna Beach, California, you would be just one of 343 active listings that range between $2 million and $4 million.

As the client, it would be impossible to set your listing apart from the other 343 listings on a $3,600 budget. To ideally and successfully market a luxury home, you can’t cut corners.

In my opinion, to properly market you must do the following:

  • Run a full-page to double-truck ad presence (not just a one line or one of 16 properties on a page) in all of the local magazines and publications.
  • Produce an 8- to 16-page brochure that is mailed out to not only the local residents, but also to wealth managers and other top brokerages in your area and surrounding areas.
  • Produce a standalone website with the property address that has an extensive video that tells a lifestyle story, a detailed photo gallery and all the pertinent details about the property.
  • Maintain a heavy online presence with sites such as Zillow, Trulia, realtor.com, LuxuryRealEstate.com, etc.
  • Provide a consistent presence on social media, especially Facebook, Instagram and LinkedIn.
  • Implement a digital advertising platform, such as Google Adwords, that exposes your property to buyers who are on sites like The Wall Street JournalThe New York TimesWashington Post, Politico, Bloomberg and others.
  • When necessary, pay for an appraiser if your current price is not moving the property, and you need a third-party evaluation to share with your seller.

Now, how can you do all of this for $3,600? Trust me, you can’t.

‘Saving’ concern 2: Dual agency

As I mentioned before, the only way an agent can make a respectable commission when using such companies is to secure his or her own buyer.

This means the listing agent must now become a dual agent; from the moment an agent steps into this arena, the paradigm of the deal shifts from doing what is best for the selling client (securing the highest and best offer), to doing what is necessary and best for the agent (securing any offer as long as they are the agent’s clients).

Dual agency occurs when a single real estate agent represents both the buyer and seller in a real estate transaction. And though dual agency deals create a desirable paycheck by obtaining a full commission, the problem that arises is that a dual agent must be loyal to both the buyer and the seller.

But how is that possible if the buyers want their agent to negotiate for the lowest possible price while, at the same time, the seller wants the highest possible price?

Let me share just four examples to make my point clearer:

  • As the analysis of real estate data is subjective, it can become problematic when the listing agent is looking at a pertinent comp and must advise the sellers of one value, and yet, most often the agent must also advise his or her buyers of yet another based on the same comp to justify his or her position on the offer.
  • The agent’s job is to obtain the highest and best offer for the seller, and at the same time, to make sure your buyer gets the best and lowest price attainable. Whose side do you compromise on to make the deal work?
  • All transactions contain confidential seller information such as the seller’s motivation in the deal, his or her financial challenges that might motivate them to sell, their must-sell dates due to a job transfer or closing of another escrow, and their expected bottom-line price that they are willing to sell for. The agent, as a seller’s representative, cannot share this information with the potential buyer as it places the seller in a weakened and harmed negotiating position. The question then becomes: “How do you best protect your seller?”
  • As real estate transactions often require listing agents to play hardball with buyers, especially when buyers submit a request for a reduction in sales price due to deficiencies in the inspection reports, a market shift happens during escrow or when repair requests are presented by the buyer in the eleventh hour with the implications that if the seller does not agree, the buyer will cancel, how do you save the deal without putting your own interests at heart?

In conclusion

An example that sticks out in my mind was a Purplebricks commercial I saw when watching the British Open on national TV.

The commercial showed a man going through a car wash being slapped in the face by the rotating rags.

In the midst of his “stupid-man punishment,” he had an epiphany where the voiceover said, “The misery you feel when you pay too much in commission and get nothing more for your money.”

The tagline was followed by small print that stated, “Based on estimate aggregate seller savings after payment of market rate buyer commission and Purplebricks seller fixed fee, as compared to the applicable local average commission rate. Projected savings apply to seller transaction only.”

As I watched this commercial unfold, I couldn’t help but think that its message not only stepped on the lines of “truth in advertising” but also, and more so, it serves as a total disservice to both professionals and uninformed homebuyers and sellers.

It’s impossible to sell a luxury home on a budget of $3,600, and dual agency is not the smartest representation.

The bottom line in discount brokerage or limited-service brokerage is that the numbers don’t add up, and the service does not show up.

Better stated, Uber X is smart savings, and a discount agent with divided interests is not. How can it be when you are dealing with a person’s or family’s most substantial asset? It cannot.

Your only job is to make sure you obtain the highest and best results that this market can offer for your seller without the limitations of only selling to “your” clients in order to get paid.

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