The Trouble with Discount Brokerages

Posted by Sue Archer on Saturday, April 29th, 2017 at 9:42pm.

When times are tough, we sadly see all sorts of discount brokerages popping up. Who wouldn't want to save money when they have to sell their home in a depressed market?

However, are you really going to save money? The old adage "you get what you pay for" isn't that out-dated.

We recently sold a home to a person listed with a discount brokerage. The home was listed at $419,000. Our clients told us that they didn't want to go higher than $410,000 on the property.

We went in with a lowball first offer - $380,000, and with a term that we (the brokerage) be paid a commission of 4% on the first $100,000 and 1.5% on the balance.

We presented the offer in person to the client and he immediately said "oh, I was hoping to get $385,000 in my pocket and that won't do it."

So, I said "Hmm - if my clients came up to $392,000 that would just about get you what you want. Would you be willing to accept that as an offer?"

"I suppose so, I guess. It's the only offer I've had. But," he said, "why are you charging 4% on the first hundred thousand. Most realtors only charge 3.5%."

"Well," said my partner, "we end up doing more of the work when you use a discount brokerage."

"Oh", he said, "that makes sense."

And so our clients got the house for $18,000 less than they would have paid and we got our commissions.

I always ask people who are looking at discount brokerages (DB's) to consider the following things:

⦁ If the DB says they'll negotiate on your behalf, how good are they really at negotiating? They've already negotiated away a bunch of their commissions - how much will they care about your money?

⦁ Will they just put your home on the mls system and forget about you? Will they consult with you regularly regarding activity in your area, and give you advice about pricing strategies? We often see DB homes growing stale on the market because no one has advised them to reduce their price or offer some incentive to buyers to make their home more attractive if it isn't selling.

⦁ Are they offering professional photos, virtual tours and staging consultations?

⦁ Do they have a receptionist or is it hit and miss when you want to get hold of them? Are they a full time realtor or fitting you in between their other job?

⦁ Do they market the property at all outside of putting it on mls? Is it on Kijiji, Facebook, and other social media sites? Do they spend money on Facebook and Google advertising? Do they have print flyers? Are they calling other agents, past clients, and people in their sphere of influence to generate excitement in your home?

⦁ Are they going to be there to help out when something goes wrong with the home inspection and the buyers want to renegotiate? If you're doing it yourself, do you know what home inspection items to stay firm on, and which ones you might have to give up a bit on?

⦁ Are they going to help you get your condo docs, RPR, and other documentation organized? Do they have a conveyancing department that will make sure the lawyers get the paperwork and the closing goes smoothly? Do they have a trust account for your deposit cheque to go into?

⦁ Are you getting the showings you deserve? While agents are not allowed to fix commissions, frankly, we are all human. If I can show your home and get a flat rate commission of $1000 after I've driven my clients around in the evenings and weekends for the last month, or show virtually the same home down the street and earn $8000, which one am I likely to choose to show?

You owe it to yourself to interview a few realtors from different brokerages (include the DB's too if you like) and choose someone who you like and trust and who you believe will work hard to market your home and help you make the transition go smoothly. Ask them some tough questions about what they'll do for you and expect good answers.

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