I had a prospective client tell me recently that another agent he was speaking to had offered to rebate half of her commissions back to the client and he wanted to know if I would do the same.  While acknowledging to him that there are certainly circumstances under which we feel it appropriate to negotiate our fee structure, I wanted to share with him some important things to consider when approached by discount realtors.

Firstly, the 1.5% rebate is largely a ploy by discount realty shops to “buy” clients because their poor service doesn’t win them repeat business or referrals like others.  Oftentimes, they are able to offer these kinds of concessions by requiring that the client use their title company, mortgage company, home warranty company and other ancillary businesses.  The higher fees generated by these ancillary services are used to offset the discount in the real estate commission.  Anytime you’re being told that you’ll pay less here if you also use these other services, you should ask yourself why.  These are businesses, not charities, and their interest is in their profit, not yours. 

Here’s some important math to keep in mind with discount realty:

On a $225,000 sale, the buyer’s broker commissions are $6,750. If 1/2 of that is rebated to the client, that leaves $3,825 to be split between the agent and his/her broker (company).  With typical splits at 50/50, that means the agent’s portion is $1,912.

How much time and attention do you think an agent under that kind of an arrangement is going to spend with each of his or her clients.  The answer: as little as humanly possible!  Seriously.  And how many clients does he or she have to juggle at one time for those kind of numbers to work.  Answer: more than they could handle effectively.  And, perhaps most importantly, what kind of agents do you think discount firms attract with those kind of numbers?

This lower-cost, lower quality approach is why most people don’t get their taxes done at Wal-Mart or Costco.  Volume is good if you’re buying toilet paper and frozen chicken breasts, but not when you’re hiring someone to assist you in one of the largest, most expensive purchases you’ll make in your life.  And certainly not in the kind of market we’re in today where there’s so much negotiation going on.  Market knowledge and negotiating skills are more critical now than ever.

Buying a home is a much more complex and dynamic process than many people initially think.  Thousands of dollars (tens and hundreds of thousands in some cases) flow one way or the other (to the buyer or the seller) in the course of the transaction depending on how well the agents advocate for their clients.  That advocacy begins from the first time those agents speak.  An agent who has to sell twice as many homes as others just to make the same amount of money has one goal in mind:  get to a contract as quickly as possible.  It’s not that they’re bad people; they’re not.  They’re just in a position where it doesn’t make good financial sense for them to spend much time or energy getting their client the best deal.

The next time you hear of someone thinking about using discounted real estate services, ask yourself what’s really being saved.  Is it their money or just their agent’s time?