Tue. Aug 9th, 2022
what-are-discount-real-estate-brokers-and-should-i-use-one?

If you’re getting ready to sell your home, you may be wondering how much real estate commissions will affect your bottom line and if you can maximize your profits with a discount broker. Will you really save money with a discount broker? Will you sacrifice value? The answer depends on your unique situation, how much time you have to spend on your home sale, and your expectations.

In this article, we spoke with top-performing agents Robert Dombrowsky, who works with over 85% more single-family homes than the average Fair Lawn, New Jersey agent; and Rick Ruiz, who sells homes nearly 50% quicker than the average Las Vegas agent, to understand the advantages and disadvantages of using a discount broker and compare services and costs against those of a full-service real estate agent. Let’s get started.

What is a discount real estate broker?

A discount real estate broker is a company or agent that will sell your home for a lower commission than a traditional real estate agent or Realtor®. Discount brokerages offer sellers basic real estate services at a pre-negotiated lower rate of 1% to 2% listing commission or a flat fee.

Real estate agent commission fees for both the listing (seller’s) agent and the buyer’s agent are typically paid for by the home seller. For U.S. home sales, commissions range from 2.5% to 3% of the selling price for each agent. This means that the home seller can expect to pay 5% to 6% of their home’s selling price in agent fees.

For example, the median home sales price was around $350,000 in 2021. Selling with a traditional real estate broker, agent fees would average $21,000, which is split between the listing agent and the buyer’s agent.

With a discount brokerage, such as Redfin, which charges a 1.5% listing commission, you’ll typically pay around 4.5% total commission (1.5% listing commission plus 3% buyer agent commission) or $15,750 real estate fees on your $350,000 home sale.

To Calculate Your Commission Fees, Start With a Home Value Estimate

Tell us a little bit about your property and we’ll provide you with a quick home value estimate. Then you can calculate your estimated real estate agent commission fees as a percentage of property value.

Pros and cons of using a discount real estate broker

Benefits of using a discount real estate broker

Reduce listing fees. Depending on the brokerage you choose and the value of your home, a discount brokerage might reduce your commissions up to 1.5% or $5,250 on a $350,000 sale.

Receive basic real estate agent services. Discount brokerages provide basic services including listing your home in the local MLS, general marketing services, documentation,  contracting, and legal services. Some offer additional services for an added fee. The services you choose are provided via a full suite of tools on their online platform.

Drawbacks of using a discount real estate broker

The seller’s (or listing) agent commission is only part of the picture. As we outlined in the example above, the reduced commission you’ll pay to a discount brokerage doesn’t include the commission for the buyer’s agent.

Potentially sell your home for less. Agents who work for full commission are motivated to sell your home for more. Based on historical home sales data monitored by HomeLight from 2014 to 2021, top agents typically sell homes for 6% to 10% more than lesser-experienced agents and 16% more than FSBO (for sale by owners). This means your 1.5% savings may actually cost you more in profits than simply paying the higher commission.

“Homeowners that go with a traditional brokerage model tend to make more money on their homes. You can save a percent and lose five percent because you didn’t negotiate well and you didn’t get as many bids as you could have gotten on your property,” warns Dombrowsky.

Savings may be less than you think. Some discount brokerages may charge hidden fees or they sell their services a la carte, which can add up and chip away at your expected commission savings. Additionally, if you pay a flat fee or minimum commission, you may end up paying more.

“You’re going to pay a certain fee to list the property. You’ll pick a photo or video package, a digital media package, a marketing package. Do you want a lockbox? Do you want a yard sign? It’s a menu and everything has a fee,” explains Ruiz.

Limited in-person support. For some sellers, the biggest potential drawback of a discount brokerage might be the lack of in-person support, advice, or guidance. Some discount brokerages do provide in-person support. However, the agents who work for discount brokers often rely on the volume of homes they sell to make money, which means they may have limited availability. The services you receive may be less robust or personalized than what you might receive from a top real estate agent.

“You don’t have anyone to advocate for you. You’ll be at the mercy of the buyer’s agent and they’ll be pushing for the best price for their client. Most homeowners don’t have the expertise to negotiate the best price for themselves,” warns Dombrowsky.

Fewer agents to choose from. Discount brokerages that provide in-person agent services may have a limited pool of agents to choose from and you don’t always get to choose who you work with.

Lack of a dedicated agent. An agent who works for a discount brokerage may not be as knowledgeable about your local market or your home, which can translate into a less than stellar selling experience. For example, a dedicated agent will clearly communicate the features of your smart home, the excellent local schools, and the nearby attractions.

Examples of full-service real estate brokerages

The following recognized brands have built their reputations on providing professional, full-service real estate service from pre-listing preparations to close:

  • Century 21
  • RE/MAX
  • ​​Keller Williams
  • Coldwell Banker
  • Compass
  • ExP Realty

Services a full-service agent might provide

When you hire a proven full-service agent to help sell your home, you receive services and support from the agent and the brokerage support staff from the beginning of your home sale to the end. Your agent is your guide, real estate guru, and marketing expert, helping you to navigate the complex and often stressful journey, making it as quick, profitable, and stress-free as possible for you and your family.

Top real estate agents often go above and beyond to ensure the quickest and best possible experience, the least amount of hassle, and the most profit for you and your family.  Full-commission agents typically provide a wide range of services some homeowners might not even have considered. We’ll review some of these services below.

How are full-service real estate brokerages different from discount brokers?

Not all discount brokerages offer the in-person representation of a live real estate agent. The comprehensive services offered by a full-commission real estate agent are often provided as part of your contract with your agent and additional services, such as staging, or at a discounted rate to what you’d pay if you hired a professional contractor on your own.

In addition, the professional services of an agent lend themselves to your paying less.

For example, says Dombrowsky, if a real estate agent hasn’t prepared the legal documentation, your real estate attorney may charge you more to review your documentation.

Examples of discount real estate brokerages

Discount real estate brokerages appeal to home sellers who hope to save money with a lower commission fee, some even offer a flat rate. How much you’ll save by hiring a discount brokerage depends on the purchase price of your home. The examples below are based on a median home price of $350,000.

Discount Broker Listing Commission Listing Commission on $350,000 sale
Redfin 1.5% $5,250
Clever 1% or $3000 $3,500
1 Percent Lists 1% $3.500
Prevu 1.5% $5,250
Simple Showing 1% $3,500
Howzer $5,000 $5,000

Full-commission brokerage vs. discount brokerage (in terms of service)

In the following table, we’ve compared and contrasted basic and custom services you can expect to receive from a discount real estate brokerage, full-service real estate agent, and listing service. Which additional services a discount brokerage offers depends on the company you hire.

Top real estate agent Discount real estate broker
Provides a comparative market analysis (CMA) to help you price your home Yes Yes
Lists your home on the multiple listing service (MLS) Yes – Detailed Yes – May be limited
Provides online marketing services Yes Yes
Provides additional marketing such as social media posts Yes Maybe
Places their listing on custom websites and networks Yes Maybe
Provides paid advertising that drives prospective buyers to your listing Yes Maybe
Provides custom flyers and signage Yes No
Evaluates your home Yes Maybe
Provides live in-person representation Yes Maybe
Suggests where, specifically, you should clean, declutter, depersonalize, and repair your home Yes No
Assists in staging or hires professional staging services Yes/Maybe No
Hires a professional photographer or virtual video services Yes/ Maybe Maybe
Provides referrals to a network of reputable contractors who can be scheduled sooner and often at a discount Yes Maybe
Schedules showings Yes Maybe
Hosts open houses Yes No
Evaluates and negotiates offers on your behalf Yes No
Schedules inspections, appraisals, and additional services Yes No
Negotiates repairs and contingencies Yes No
Hires a real estate attorney Yes Yes
Guidance and support through complex or stressful stages of your home sale Yes No
Provides solutions and contracts that can be customized for your unique home or situation Yes No
Coaches you through the transaction and closing Yes No
Helps you coordinate the move-in date Yes No
Assist with the purchase of your next home Yes Maybe

Find an Agent 100% Worth Their Fees

We’ll connect you with three top local agents proven to deliver amazing results for their clients. Our data shows that the top 5% of real estate agents across the U.S. sell homes for as much as 10% more than the average real estate agent.

FAQs about discount real estate services and commissions

What is a limited-service agent?

Limited-service agents offer lower commission fees by providing only some of the traditional services offered by a full-service agent. Unlike the larger discount brokerages that offer a wider range of services, a limited-service brokerage might not offer expected services. What services a limited-service agent must provide vary from state to state. Some of the services that may be omitted include scheduling showings, presenting all offers, advising sellers on the merits of offers, negotiating and developing counteroffers.

What is a flat fee MLS listing service?

When you hire a real estate agent, they have access to a multiple listing service (MLS) where they post your property for sale. If you’re not using an agent and selling “for sale by owner (FSBO), you can pay a flat fee to an MLS brokerage company that will list your home on an MLS site. Unlike a discount brokerage, a listing service provides only one service: listing FSBO properties into the local MLS for a flat fee.

Can I negotiate a discounted commission with a traditional real estate agent?

Real estate commissions are absolutely negotiable. Many agents come to the seller’s home prepared to negotiate. Agents are competing with other agents and the newly popular discount brokerage platforms. In short, some real estate agents are prepared to negotiate a lower rate and still provide more comprehensive services.

During your negotiations with the buyer, you can ask the buyer to pay the buyer commission.

“Today’s consumers are used to lower costs. The advances in technology have added efficiencies and made it easier for agents to provide full value at scale. And competition in this hot market has also reduced rates. Because the market value for homes today is a lot higher, there’s a lot more room for the agents to charge a discounted commission and still be compensated handsomely,” explains Ruiz.

Will I really save money with a discount real estate broker?

Whether or not you will save money with a discount brokerage depends on what you define as saving money. Because a top agent typically sells homes for more, the amount you pocket in profit on your home sale may be less with a discount brokerage than it would be with a full-commission agent. Other factors that play a role in savings include the value you put on your time and customer experience.

“At the end of the day, there’s a balance. You have to ask: Do I want that Realtor® that’s willing to work for that rock-bottom compensation?” says Ruiz.

Do discount brokerages represent homebuyers?

Many discount brokerages offer commission rebates to homebuyers. While this may equal money in your pocket after your home sale, be aware that a rebate isn’t applied to the cost of your home and you’ll pay mortgage interest on the full amount.

Should I hire a discount brokerage to sell my home?

Whether or not you should hire a discount brokerage is a personal decision that depends on the level of service you expect and whether you’re aiming for the highest possible purchase price. To better help you in your decision, we put together a list of the types of homebuyers that might benefit from the services of a discount brokerage:

Who might benefit from hiring a discount brokerage?

  • If you’re selling “as is.” According to Dombrowsky, if your home is in poor condition and in need of extensive repairs or remodels that you won’t be providing, you might use a discount brokerage to sell “as is” to a cash buyer. In this case, you’re going to get a lower offer regardless, the investor won’t be negotiating with you, and most of the personalized services and marketing provided by a full-service agent may not be required. However, in this case, it is best to understand the minimum fee so you’re not paying more than you would with a full commission.
  • If you’re selling FSBO. If you plan to sell your home for sale by owner (FSBO), without the in-person services of an agent, a discount brokerage can provide the listing, marketing, and documenting services you’ll need at a reduced rate.
  • If you’re an involved seller. If you’re a hands-on go-getter with the knowledge and expertise to add value to your own home sale, you may prefer working with a discount brokerage.

Who might not benefit from hiring a discount brokerage?

  • If you’re selling a luxury home. Many full-commission brokerages already offer a discounted commission for million-dollar homes.
  • If you’re selling a low-priced home. Discount brokerages that charge a minimum fee may end up costing you more for less-than-comprehensive services than you’d get from a full-commission brokerage. For example, the full 3% listing commission on an $85,000 home is $2,550, whereas a $3,000 minimum fee is actually 3.5% commission.
  • If you need a home-selling champion. If you’re a seller who wants or needs a high level of certainty regarding your selling objectives, or a feeling of confidence that you’ve hired a real estate professional who will take the entire ball and run to the home-selling endzone, you may not want to use a discount brokerage.

Partner with a top-performing agent when results are a must

Bottom line: a discount brokerage may or may not provide you the results you’re expecting. If you want the best possible return on your home investment — what’s likely your largest asset — HomeLight’s Agent Match platform can connect you with a performance-proven agent in your market. This free tool analyzes over 27 million transactions and thousands of reviews to determine which agent is best for you based on your needs.

Header Image Source: (David Papazian / Shutterstock)

Leave a Reply