Full-service Discount Brokers vs. Limited Service Discount Brokers
Recently, I've received a lot of phone calls asking about the difference between full service discount brokers and limited service or self -service discount brokers. This is a topic I’m kind of passionate about, so I decided to vent this to the public
This is an important topic, because when you use a limited service agency, you put yourself at risk, at least financially. You may not be saving the money you thought you were. I know, because I used to be a limited service agency. I’ve seen the problems that occur as a result of this type of service. I thought we were providing a great service to our customers by saving them the listing commission and letting them do the work an agent would do.
But I was wrong. I learned there’s a reason agents are required to have 120 hours of education, must be licensed, must work under a broker, and are required to have continuing education yearly. It would be great if your average homeowner could do the work an agent did, but they don't have the training or the experience. Selling a house yourself isn't as simple as selling your car yourself. But people, especially in Utah, don't understand this, and line up for these services, hoping to save money by doing the work themselves.
When we were a limited service agency, I saw many many homeowners who didn’t know what they were doing, and therefore, lost thousands and thousands of dollars and many didn’t even know it. One day, after a particular experience, which I’ll relate later in this blog, I finally came to the conclusion that it really was NOT in my clients best interest to let them do the work themselves. I had to find a way to provide full service, but save them money at the same time.
So let me explain.
First of all, let’s talk about the difference between the two.
A full service agency stands by your side, guiding you all the way through the home selling or home buyer process, offering their experience and expertise along the way. They help with the staging, pricing, advertising, contracts and contract negotiations, deadlines, etc.
A limited service agency typically will list your home on the MLS for a small fee, but other than that they only offer their expertise if you ask for it. But remember, you don’t know what you don’t know, right? They may have agents or attorneys standing by to answer your questions, but if you don’t know what questions to ask, then you still put yourself at risk.
With a limited service agency, you have to price your own home, stage your own home, take all the calls, understand the contracts, negotiate your own offers, track your deadlines, etc. Sometimes these agencies will offer their help with contracts for an additional fee.
Many homeowners feel they can do the work an agent can do, because they don’t understand what agents do. They don't understand that 80% of what you pay an agent for is their experience and expertise. So, they feel like they can do the work themselves in order to save the commission, but as I’ll show you, this isn’t always the wisest course to go. Let me explain.
I have always thought, and still do, that having to pay 6% to sell your home is way too much money. A long time ago, before the internet, a listing agent did a lot more work to sell a house, and probably earned the 6% commission. However the internet has changed all that. Listing agents no longer have to be neighborhood experts to know how to price a home, because all the data is online. They also no longer need to advertise in newspapers and magazines because nobody reads those anymore. It’s all on the internet and very cheap to advertise on.
When I got into real state 18 years ago, I knew I couldn't charge 6% and live with myself. So I started a flat fee, limited service agency. In fact, when I started, there were only three others that I knew of in Utah. Now, everybody seems to be jumping on the band wagon. That's good, because it means the industry is changing and other agents are also realizing that 6% fees are too high.
I was all about helping my clients save money. I knew that Utah is the Do it yourself capital of the world, I'm one of them, so I thought, why not list people on the MLS for a small fee, and allow them to do the work themselves? That would save them tons of money in commissions right? Not always.
As a limited service brokerage, we would place a clients home on the MLS for $200. It was up to them to do all the rest. If they wanted contract assistance, we would do that for another $500, and we were available to answer any of their questions. This was a similar model that other limited services agencies were using, and still do today. As a result, I listed a lot of homes. I had people lining up for these services, hoping to save on commissions, which is great. There’s nothing wrong with that. But I saw a lot of things I didn’t like.
To start, I quickly realized that homeowners did NOT know how to price their homes. Many times they would request a home value report from us, and I’m sure that helped, but pricing a home based on home value report alone, doesn’t always work. I’ll relate an experience about that later on also.
I saw a number of clients who priced their home far below market value. Had I noticed this before or at the time of listing, I would have said something, but normally it was discovered at the time an offer came in and had already been accepted.
These people would list their home, and hours later they would have several offers. A sure sign they had listed for too little. Sometimes, out of curiosity, I’d do a home value report just to see what their home was really worth, and would find the home was worth a lot more than they sold it for.
My clients we’re ecstatic that their home sold so quickly. I guess ignorance really is bliss. I didn’t have the guts to tell them why it sold so quickly. Even the savings in commissions didn’t make up for their loss of equity. These people had lost thousands of dollars, and they didn’t even know it. I felt bad for them, but kept telling myself they knew the risks and decided to do this on their own, but in the back of my mind I was feeling guilty. Had I been a full service agency, this wouldn’t have happened.
Then there were those clients who priced their home too high. Their home would sit on the market for months with few showings and no offers. After several months, they would cancel their contract with us and a week later it would be back on the market listed by a traditional 6% agency at a much lower price. Of course, now their home sold because it was priced correctly, but they paid 6% to do it. This group literally paid out thousands of dollars in commissions more than they needed to
Again, if I had been a full service agency, and had helped them price their home in the first place, it would have sold and they would have saved those thousands in commissions.
Another issue I saw on a regular basis was poor contract negotiations. Most homeowners don’t really understand the contracts and what the clauses in each of them really mean and the repercussions each of the terms might have on their sale down the road.
Most buyers agents, when they realized the home owner was representing themselves, did everything they could to tip the scales in their clients favor and they should, that’s what they’re getting paid for.
Sometimes clients would call me and ask questions. I would answer the questions, which at the time, I thought I was being helpful. The problem is clients didn’t know all the questions they needed to ask. It wasn’t until after they were under contract that they would call me screaming bloody murder because they were now in a contract they didn’t want to be in.
Again, I kept telling myself, they were ones that decided to go do this by themselves. They knew the risks, but had I been full service agency, I could have prevented these problems.
So, I as mentioned earlier, I had an experience that tipped the scales. I realized that putting my clients on the MLS for a low flat fee and letting them do the work, wasn’t in their best interest. I finally made up my mind that I needed to find a way to still save my clients money, but give them full service at the same time. So here’s what happened.
I had a client call me, and ask for a listing. It was a million dollar home and he listed it for $1.1 million dollars. After the home had been on the market for about 2 months, he received a cash offer from a guy in California for $1,050,000. My client told me he was going to counter and I told him I thought he was nuts. This was in 2009, we were in a declining market, and the cash offer didn’t require an appraisal. Finally he came to reason and decided to accept the offer. About two weeks later, I received a cancelation notice from the buyer’s agent. It said they were canceling because the seller refused to abide by the contract. I called the seller and ask him what happened. He said he didn’t like the terms after all, and wanted to change them. He didn’t think there was anything wrong with that. I said, "you need to call them back and tell them you’re just kidding and do the deal you originally agreed to. You may not find another buyer. There aren’t that many cash buyers who can afford a million-dollar house."
He said, "I tried to fix things, but the buyer simply said he didn’t trust me and no longer wanted to work with me." So we put the house back on the market. A few days later, he calls me and tells me he wants to cancel the contract. I said okay. A week later, it’s back on the market with another agency advertised as a short sale. To make a long story short, this guy was in default. He didn’t tell me that, but I found out later. They ended up selling the house for $650,000 and he didn’t get anything. I looked on the county records and estimated that he owed about $800,000 on the house. If we had been a full-service agency representing him, his deal wouldn’t have fallen through and this guy would have walked away with around $200,000 in his pocket. Instead, he walked away with nothing and a short sale on his record. After this, I knew I had to go full service.
Now, let me tell you two positive stories that happened just this last summer. This has to do with home valuation and home value reports and why you can’t just rely on the home value report alone, when determining a price.
We had a client call us wanting to sell their house. The home was in really rough condition and we figured they needed to get at least $240,000 for the home in order to break even and have a couple thousand left over for moving expenses. However, I wasn’t sure we could sell it for $240,000 in its current condition. We did a home value report, and in good condition, the home should sell for $265,000 - $270,000. We determined that if they put $15k into the property, they could easily sell the house and still have $5k - $10k left over, but they didn’t have $15k. Eventually, her father lent her the money and we had some people come in and fix up the house. It actually ended up costing them $20k to fix it up, but it looked really great and we knew it would sell quickly.
We were in an appreciating market, and home value reports use historical data right? So just for kicks, we decided to list the home at $299,000. Two days later they received an offer for $301,000. If I remember correctly, I think they walked away with about $40,000 in their pockets. Do you think they were bummed they used a full-service agency? They were going to try and sell the house for $240,000. Had they used a limited service agency, they would have just broken even with nothing in their pockets.
We had a client call us and express an interest in selling their home, but first they wanted to know how much their home was worth. When we arrived, they told us that they were planning on listing with Homie, and based on what their neighbors house sold for, they were going to ask $325,000.
After looking at the house, I knew right off the bat that $325,000 was too low. I told them their house could easily sell for $340,000 and they should probably list it for $350,000. It wasn't that we had any comps to support a higher price, but I knew the market and they had done a great job updating their house. They decided to list with us and within three days we had a full-price offer. Because they chose to use a full-service agency, they walked away with an additional $25,000 in their pockets.
Now I know these examples are extreme, but they just reaffirm my position that homeowners, in most cases, are much better off using a full-service agency than trying to go it alone. I know, I’ve been both, I’ve seen the difference a full-service agency can make. I think anybody using a limited service agency is nuts, but thousands still do it.
Another reason to use a full-service agent, is agents serve as a buffer between the seller and the buyer. Now this may not seem like a huge benefit to someone who doesn’t sell homes for a living, but trust me, this is a huge benefit. Even with the buffer, Buyers and Sellers constantly do things that annoy each other. Agents keep it civil and as a result, keep the deal from falling apart.
As I mentioned, Utah Home Central is now a full-service agency, but we still only charge a flat fee. This allows us to give our clients the service they need and still save them thousands in commissions.
Now I can sleep at nights knowing that my customers are getting the best possible service and we’re saving them money at the same time.
It’s probably also important to mention here that regardless of which type of realty firm you use, if you list your home on the MLS, you will also need to pay a buyer’s agent a commission. To learn more about how commissions work, click here
As I mentioned, we are all about saving our clients as much money as possible, so if we can find you a buyer who doesn’t have a buyer’s agent, then you will also save that portion of the commission which is huge. Now we can’t guarantee we can do that for you. Quite frankly, probably 90% of all homes listed on the MLS are sold through a buyer’s agent, but we do have several tools and techniques we use to try and find unrepresented buyers. In fact, at the time of this writing, we closed four listings in the last month and half with unrepresented buyers.
Now, I’ve noticed lately that some limited service agencies are touting that they are full service. If they are only charging $200 - $1,000 to list your home on the MLS, then they are not full service, even if they say they are.
Think about it. Let’s say they need around $6,000 each month to pay their bills and such, and I think I’m being conservative here. At $300 a listing, they would have to list 20 homes every month, month after month. There is no way one agent can give all those clients the attention they need in order for it to be a successful transaction. Plus, listings are how they make money, so where do you think they are going to focus their attention? Right, not on your listing. On getting more listings.
To illustrate, I had a client once contact me to list his home. He had been with a limited service agency. I asked him why he left. He said that an offer had come in on his property, but it sat in the inbox of the agent for 3 days. By the time he received the offer, it had already expired. This is a classic example of an overwhelmed agent trying to juggle too many listings.
You really are better off going with a full-service listing. Utah Home Central will give you the service you need and still save you thousands of dollars in commissions. Now, if for some reason you don’t like us, then find another full-service agency; Otherwise sell at your own risk.
Oh, one more thing I didn’t mention. If you will call us a couple of weeks before you want to list, or better yet a month, we will come over and tell you what you can do to your home so that it sells quickly and for top dollar. We’ll also give you some tips on what you can do to save money on your inspection and also make your sale go through much smoother.
None of the limited service agencies will do that for you.
Thank you for visiting Utah Home Central. If you have further questions, please feel free to reach out to us. You can find our contact information on Utah Home Central. I hope we can help you with your real estate needs in the near future.
Now, before I end, I need to talk a little bit about Homie vs Utah Home Central. Most of the people who have called have brought Homie up and wanted to know how we differ.
If you don’t know who Homie is, it’s a relatively new agency, that started out as just another for sale by owner company. You paid, I believe a fee of $300 or something, and you could list your home on Homie. For an additional fee you could also get listed on the MLS. They tout themselves as this revolutionary new way to sell your home, but FSBO companies like them have been around for a long time. Homie is just spending an incredible amount of advertising dollars, and so they are coming to the attention of everyone a lot faster than most, and the advertising seems to be working.
However, recently, I looked at their documentation, and their pricing model is exactly like Utah Home Central’s; they just charge a little more. At first I was pretty excited because I thought that maybe they had also realized that their customers would be better served under a full-service model and that’s why they raised their prices.
If you can’t tell, I believe strongly in our model. Full Service for a flat fee. Unfortunately, after looking at their program again, I realized they are still a self-service outfit. My guess is they raised their prices to help pay for all the advertising they’re doing.
They charge $3,500 and Utah Home Central charges $2,800 to list a home. On the buyer side they will also split their commission, up to 50%, but you have to use their lender and title company to get it. Utah Home Central just gives you the cash and you can use it for whatever you like.
Okay, sorry for the long, drawn out, blog. Hopefully it was helpful. You are welcome to make your own comments. Feel free to check out our Google Reviews