You don’t! Discount brokerage is a fact of life in our industry, but it’s not a threat to traditional full-service brokerage and here’s why.
There is a principle that marketing experts understand: In any market, for any good or service, approximately 15% of the customers will gravitate to the lowest-priced option. Oddly enough, almost as many will invariably choose the most expensive option, assuming that high price is synonymous with quality. Now, with that in mind, let me share with you a couple of current real estate statistics.
According to the National Association of REALTORS®, the percent of FSBO Sellers has steadily decreased over the last 10 years. In 1997, 18 percent of sellers sold their home without using a real estate agent. In 2007, the portion of FSBO sellers decreased to 12 percent. During the same time, the percentage of sellers who sold their home using an agent or broker has steadily increased.
Last year, the average commission side percentage rose from 2.5% to 2.6% nationally, reversing a downward trend over the previous decade. That is notable, particularly when you factor in the high number of short-sales and bank-owned transactions where brokerage commissions are often negotiated in bulk, resulting in significant discounts to the listing side.
Another NAR survey revealed that 18 percent of residential sellers used limited service or minimal service brokerages, while over 81% used full-service brokerages. By limited or minimal service brokerages I mean flat-fee, fee for service, FSBO assistance, and all other models of discount brokerage. In other words, all of them together don’t amount to 20% of the total sellers today.
The study didn’t indicate whether discount brokerage was on the decline as well, but it would certainly seem reasonable that if the demand for FSBO was declining, the demand for the “next best thing” would be decreasing as well. Certainly one could reasonably infer that demand for discount brokerage is at least not growing.
Another factor to consider is that discount brokerage typically abounds in areas where there are a disproportionately greater number of agents, like Florida and Arizona, where many retirees pick up real estate as a source of extra part-time income.
I realize that in a time when agents’ number one concern is having enough customers, we tend to be afraid of our own shadows, but I say we shouldn’t be. Discount brokerage is probably here to stay, because of that 15% phenomenon, but when you look at the actual numbers, it would make just about as much sense to be the most expensive agent as it would trying to compete with the discounters.
So I say, don’t compete with the discount brokers. I sure don’t, and that’s my quick answer.