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Getting what you pay for? -- Page 2

It is unclear how many sellers work with discount or reduced-commission brokerages. The National Association of Realtors doesn't ask its members -- discount brokerages are usually members of the association -- any questions about their commission structures, says Walter Molony, a spokesman for the organization. Molony does say, though, that such brokerages serve a small niche: owners who would like to sell their homes on their own but understand that they need some help with handling the paperwork, scheduling showings or negotiating a final sales price.

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There is little arguing, though, that reduced-commission brokerages are gaining strength. Help-U-Sell now runs 750 franchises across the country. ZipRealty notched revenues of $62.3 million in 2004, an increase of 84 percent from 2003, while handling 8,500 transactions. Assist-2-Sell is on track to earn $8.3 million in gross income in 2005, up from $5.2 million in 2004.

It is also clear why sellers who have gone with a discount brokerage have made the move: money. Housing prices have risen sharply in the last several years, with the NAR reporting that the median price of existing single-family homes as of early May stood at $193,600. The standard 6-percent commission on the median home, then, comes in at $11,616.

"We offer people choices," said Rick O'Neil, president of Help-U-Sell, whose offices charge a flat fee that varies across the country but is generally 30 percent of a full commission in a given community. "People are asking, 'Why should I pay more for a $400,000 sale than I would if I was selling my house for $200,000? What am I getting that the person selling at $200,000 isn't getting?'"

Is a reduced-commission brokerage right for every seller? Probably not. It all depends on how much service a seller wants.

"There are a lot of things that we do that people don't realize," said Stephen Baird, president and chief executive officer of Baird & Warner, a traditional real estate brokerage, based in Chicago. "People who go with discount brokerages have to make sure they understand what the discount broker is going to do for them. There are a lot that try to look like full-service brokers but don't provide all the services. That creates a lot of irritation with consumers."

Baird points to the paperwork sellers face as one example: Full-service brokerages help sellers fill out disclosure agreements and other forms that are required by law. They also qualify potential buyers, help sellers set a fair price for their home, and handle the often-unpleasant negotiation process, Baird says.

"You need someone advising you on what the market is," Baird said. "Is this a good price? People often give away thousands of dollars in their sales price just to save a few thousand dollars in commissions."

Proponents of discount brokerages, though, say that enough models of reduced-commission brokerages now exist so that consumers can easily find the ones that offer the right amount of service for them. For instance, ZipRealty, based in Emeryville, Calif., does place sellers' homes on the MLS. Assist-2-Sell offers one level of service that includes the MLS, a second tier that includes everything but the listing service and a third level at which Assist-2-Sell merely handles the contracts and other paperwork for clients who are otherwise selling their homes on their own.

Help-U-Sell, for one rate, will provide all the services of traditional brokerages, except for the Multiple Listing Service. Help-U-Sell, though, does list its clients' homes on its own Web site.

Those running these brokerages say clients deserve the extra choices.

"I've heard people tell me they've had a better experience buying a tie than they had buying a $400,000 or $500,000 home," said Patrick Lashinsky, vice president of marketing and business development with ZipRealty. "We're built around providing full service at a lower price, and people are responding to that."

Proponents of reduced-commission brokerages say that the real estate industry for too long has been resistant to change. Discounters, they say, offer a key alternative in an industry that desperately needs new business models.

"As home prices rise, people are finding 6-percent commissions to be absurd," said Lyle Martin, co-chief executive officer of Assist-2-Sell, which operates 470 offices in 45 states. "People are also buying and selling more homes in their lifetime. They are realizing that selling a home isn't brain surgery. They are starting to question why they are paying tens of thousands of dollars on a real estate agent."

-- Updated: July 14, 2005
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'05 Real Estate Guide
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