Quick Answer Series: How Do I Compete with Today’s Discount Brokers?

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.

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Comments 14

  1. author Jean Burgdorff posted November 5th 2010. 12:41 pm Reply

    super article, Matt! Will share with all my Full Service Agents!!

  2. author Matt Jones posted November 5th 2010. 2:19 pm Reply

    Thanks Jean, for reading, for commenting, and for sharing. It means a lot.

  3. author Daniel A. Mooney posted November 5th 2010. 5:06 pm Reply

    But yey a couple of your sponsors are flat fee guys why even help these guys? When alot of agents see these flat fee listings they are not shown in our area because you also end up doing all the work.

  4. author Matt Jones posted November 5th 2010. 5:36 pm Reply

    Huh? Daniel, I’m confused. I’m not sure what you are talking about.

    Are you talking about advertisers on Google? I have no control over who advertises in Google ads, although I’ve never seen a flat-fee broker among them. If they are willing to subsidize this free training website, then I say, “more power to them”.

    Hey, between you and me, I give away tens of thousands of dollars in free training and it’s not like my readers are sending me checks in the mail. If Google wants to pay me a few bucks, I’m okay with that.

    Don’t assume because somebody wants to advertise and Google includes it on my site, that I endorse what they are selling.

  5. author Meg Mccarthy posted November 5th 2010. 7:03 pm Reply

    If a seller wants a selective menu to shop, then discount brokerage is for them. When a client asks me for a discount, I, in turn, ask them which of my services they are willing to forfeit. It stops them dead in their tracks. Keep up the great articles Matt. I am enjoying and picking up good information from them.

  6. author Matt Jones posted November 6th 2010. 9:53 am Reply

    Great comments guys! SwellNoelle, I totally agree with you. Many “full service” agents should ask themselves what they are really bringing to the table. I certainly would have a problem paying a full commission to some of the agents I’ve done cross-sales with. I think that as long as you add sufficient value to the transaction you will always have a job.

    Meg, I love your line: “which of my services are you willing to forfeit?” Might even use it myself. Thanks again for your kinds words and for commenting. Keep on reading!

  7. author Anonymous posted November 6th 2010. 9:39 am Reply

    Full service agents, don’t be afraid! There is room for all of us in the sandbox! As a Flat Fee MLS service provider with over 14 years in the full service real estate business, I can assure you that your jobs are not in jepoardy! What is needed, here, is education about the benefits of services like mine and how buyer brokers are affected. First, let me say that I receive calls every day from homeowners who were previously listed with full service companies and due to the 6% commission, these sellers could not get a home priced where it should be. Thier former agents are sending them to me! I have a great repoir with local agents and work hard to make sure they know how things work with Flat Fee. Many do think they have to do double duty during a transaction, but the truth is, my sellers are well educated and instructed. They know what they need to do on their end and there really is no “extra work” on the buyers’ agent side. Now, having said all that…there will always be a demand for professional, full service agents with talent, drive and skill. Take a long hard look at the agents in your area (and look at yourselves) and ask the question: Are sellers using Flat Fee or discount services because they’re cheap, or is it because we aren’t doing enough to command a 6% commssion? As a Flat Fee MLS provider, I can answer that question. I hear is straight from the sellers’ mouths every day. To keep your job safe, you have to build value in waht you do, market yourself and your listings and find ways to do it better, every day. Thanks for the blog, Matt!

  8. author Debbie Wood Scrimshire posted February 7th 2011. 12:35 pm Reply

    Great comments. I don’t run into this very often in my area. Most sellers understand that full service can be the difference in the house even selling at all. We have to do more to sell home these days. Also when you sell your home and buy another you make up the difference on the buy end by getting a “good deal” on your dream home. Some of my listings have sold in a week and then they bought their next home at $200000+ discounts because of the market.
    I guess it all boils down to client motivation.

  9. author Mona Clevenger-Beuthel posted February 7th 2011. 2:00 pm Reply

    Let’s face it, the discount brokers are like cars with no tires. I refuse to offer inferior service and denounce my Real Estate community. My integrity and quality of service is the icon of my business. There is nothing to fear, about going up against the discount brokers. I am seeing less and less of them in my area and that is a good sign. Their strategy is to lower the price of the property to get it sold rather than work for the Seller to sell the home. If you do the math, the Seller ends up paying more in the end, that they would had they paid a full service agent.
    They are doing a huge disservice to the community.

  10. author Heather McCue Carey posted February 7th 2011. 5:30 pm Reply

    I actually offer both sides, and I understand the need for both sides. Most people need a full service REALTOR. Their sales prices are positively impacted by the marketing I do, and they put more money in their pockets by hiring me than by going the cheap route.

    Some sellers, though, particularly saavy investors, don’t feel they need our marketing. They’re well networked, ingrained in the local community, know ALL the REALTORS, and simply want access to the MLS. They priced their property before they purchased it and are willing to hold the home until they get their price, whatever it might be. I benefit from a little cash up front, sign calls, and the chance to use their properties to drive people into my LCM site. Plus when they occasionally need a buyers’ agent, I’ve got the relationship. These sellers are worry-free, and it’s truly a win-win situation for us. They also aren’t any extra trouble for the buyers’ agent – all calls and offers continue to come through our office; most agents don’t know they’re flat fee until they see the HUD.

    While I think there’s a need for both models, I wholeheartedly agree that the two are not in competition for the same clients! Flat fee clients simply will not pay full commission, and full price clients (once educated) won’t settle for flat fee service.

  11. author Matt Jones posted February 7th 2011. 7:48 pm Reply

    Thanks guys for the great comments and for reading! Check out http://TheTankForum.com if you get a chance and join the conversation. Thanks again!

  12. author Gail Ryan posted February 7th 2011. 9:06 pm Reply

    I have found excellent service, do what you promise, keep them in the loop, be aware of their needs and stopping by the house to say hello wins out in the end. Not to mention the referral they bring you.

  13. author Robert Clifford Wright posted February 8th 2011. 12:38 am Reply

    I totally agree with you.Apart from the fact that ” you get what you pay for ” cream will always rise to the surface .Professional real estate practice is worth paying for , and the peace of mind cannot be governed by money when dealing with your major assests such as primary place of residence or a retirement real estate investment.

  14. author Matt Jones posted February 8th 2011. 4:50 am Reply

    Hi Robert and Gail. Thanks for reading and for taking the time to comment.

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