What They Aren't Telling You About Discount Real Estate Brokers

First of all, I need to commend discount brokers like Homie for trying to change the real estate industry. The 6% commission structure is no longer valid. With the internet, listing agents no longer need to be experts in neighborhoods because all the data is online.

They also no longer need to incur large advertising expenses with magazines and newspapers like they used to. Listing and advertising a home has become fairly inexpensive, so why are listing agents still demanding 6%? Things need to change and discount agencies are changing this.

However, there are a few things you should know before you decide to list with a flat fee agency:

1) Not all discount real estate brokers are alike. There are Full Service, Limited Service and Self Service agencies. The best way to illustrate this is by using an example that recently occurred. I got a call from a lady who told me she was selling her home and wanted to know what her home was worth. I told her I could do a home value analysis for her without seeing the home, but the home value analysis would be much more accurate if I could see the home.

She invited me to her house to take a look. When I got there, she admitted that she had already contacted Homie, another flat fee agency, and had them do a home value analysis for her already. She was leaning towards them, but her friend encouraged her to get a second opinion, so she contacted us. The other agency told her the value, based on the comparables, was $325,000.

After reviewing her home, I did my own analysis. Sure enough, the home value report came in at $325,000. However, the other agency hadn't come to her home, so they didn't know what it was like inside. This couple had done a really great job fixing it up.

I contacted them and told them what the value came in at, but I knew the home would sell for much more than what the comparables indicated, so I suggested she start at $349,000. They were a little hesitant to do that. Two other homes in the area had recently sold in the $325K range, and they were afraid their neighbors would think they were being unrealistic.

In the end, they took my advice. We had the home on the market for only two days and received a full price offer. Not only did they save a ton of money on commissions, but they got $24,000 more than they would have received had they gone with the other agency.

Seeing the home is critical in pricing a home and most of the limited and self service agencies don't make house visits. However, a full service agency, like Utah Home Central, will make house visits because it's in the best interest of their clients.

I know that was a long example, but I have to give you one more example that happened. We recently sold a home in the Herriman foothills. When I first met with the owners, there weren't a lot of comparable properties to determine price, so I suggested they hire an appraiser; an approach that has worked well for many of our harder-to-price clients. By hiring an appraiser, they would know where to price their home and other buyers couldn't tell them they were priced too high.

The appraisal came back at $575,000. My clients were very disappointed, and felt sure it was worth more than that. At this point most homeowners, even though it may disappoint them, would list their home at what the appraiser said it was worth or they might list it $10k - $20k higher than appraisal, but very few would list their home $100k plus over appraisal. Most of the time appraisers are pretty accurate and I'll admit that my inclination was to tell them their expectations were just too high. However, I decided I better take a look at the appraisal before I said anything. As I looked at the appraisal in more detail, I realized that the appraiser had not given value for three outbuildings that were located on the property. As I discussed this with my clients, we decided to test the market and list the home at $699,000; a far cry from what the appraiser said it was worth. Even many full-service agents would have said we were nuts.

Three days later, we received a full price offer with the Sellers paying $10,000 towards the buyer's closing costs. The appraisal for the current buyers came in at $692,000. So all in all my client's net sale came in at $682,000; that's $117,000 more than what the first appraiser thought it was worth and we saved them $18,260 in commissions.

This is another example of why you need a full service agency. A limited flat fee agency wouldn't take the time to review the appraisal and quite frankly wouldn't care where you priced your home because they are more concerned about getting more listings than they are about really helping each of their clients get the best possible price.

2) What's important to know is there are two types of Flat Fee Agencies. Full Service and Limited Service / Self Service agencies.

3) This isn't always very easy to determine, because many of the limited service agencies advertise and try to pass themselves off as full service agencies. For the most part, limited service flat fee agencies charge a small fee; it's mostly just to get you on the MLS. In order to make enough money to support themselves, their main focus is on listings, not selling your house or managing your sale. This can be very tempting because of the savings you think you're getting, but beware, there are a lot of pitfalls. See our blog on Full Service vs. Limited Service Agencies.

If you're not sure if they are full service or not, ask them to come to your house, especially if they're offering to do a home value report. You might also ask them to come out and evaluate your house so they can provide tips on what you can do to sell your house faster and for more money. If they won't do this, then they're not full service. By the way, Utah Home Central agents will come to your house and provide useful tips on what you can do to sell your house faster and for more money and there is no obligation. They will even do a home value analysis absolutely free.

4) There is a lot of risk using a limited service agency. I know, because we used to be a limited service agency. YOU MAY NOT BE SAVING AS MUCH MONEY AS YOU THINK. For more information on this, watch our dry, but very informative video on - The Dangers of Using a Limited Service Agency. Or you can read our other blog on Full Service vs. Limited Service Agencies

5) Some of these companies try to use technology or software to help homeowners sell their house without an agent, saving them a large commission. I think that's great in concept. However, there are too many variations that can occur in real estate transactions for any software to handle. Software has its place, but it will never replace an agent with years of experience and expertise.

As I looked through several limited service flat fee agency reviews, I found several common complaints. Here are a few of the pitfalls customers are reporting:

Hard to reach a live person. This is probably the most common complaint. Remember, because their fee is so low, their focus is on getting more listings, not providing excellent service to their customers. Again, they are wanting you to use their software / technology for communication, which is fine in some circumstances, but not all.
Takes around 7-9 days to list your home. I guess this isn't a big deal, but a full service agency can have it listed much faster.
Little to No Contract Assistance. This is critical. Many limited service agencies will receive the contract and then they just forward it to you. They don't go over the contract in detail with you and discuss whether the terms are in your favor or not. You're left on your own to determine what to do next.
Once you're under contract, you're on your own. This was another complaint we saw often. Users said there didn't seem to be a lot of help after their house went under contract. This is a very important time period, and many deals fall through during this phase if things aren't handled just right, so I can understand their frustration.
Have to stage your own home. Some people are good at this and others are not. A full service agency can help you with this and a well staged home can bring you thousands more.
Take all your own appointments and gather all your own feedback. Not a big deal, but definitely something you get with a full service agency.
Slow to respond. Another complaint we read about was their agents were slow to respond. One reviewer even said they lost the home they wanted because it took the agency too long to get back to them during the offer phase. This is a common theme with most limited service agencies; they are simply spread too thin.
You handle all correspondence with the counterparty (buyer or seller). This may not seem like a big deal, but buyers and sellers are constantly doing things to annoy each other. Using an agent as a middleman serves as a cushion to keep things civil.

As I mentioned above, it doesn't matter how great the software is, it will never take the place of a human (agent) with years and years of experience and expertise, who will hold your hand all the way through the process.

As you can see, I'm not a proponent of limited service or self service agencies because we used to be one and saw many of our customers lose thousands of dollars; and in many cases they didn't even know it. Selling a home isn't as easy as selling a car. There is a reason agents are required to be licensed and must have 18 hours of continuing education every two years.

To learn more about this, here are a couple of links to consider. Also check out our Google Reviews:

Full Service Agency vs Limited Service Agency

Dangers of using a limited service agency.