Getting what you pay for? --
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.
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
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
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
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
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."