Lately, it seems like the real estate wheel is constantly trying to be reinvented. New models promising to change the brokerage landscape with venture capital, rapidly evolving technology, and promises of discounts to the consumer while still offering the same amount of service are almost too perfect. Discount brokerages have used tricks through large ad campaigns as smoke and mirrors for buyers and sellers alike. As I would say to a market like DC’s, if the wheel is working, don’t fix it!
Discount brokerages are on the rise nationwide with promises to change the real estate game, put the power back in the hands of the consumer with flashy technologies and marketing campaigns that promise to be the future of the real estate market. These brokerages may offer a subsidy to the buyer at closing, reduced commission to seller, or a flat fee for their services. Each of these discounted models may appear attractive, but what lies beneath may be a lesson in cutting corners.
To address the subject head on: is the discount really worth it?
Let’s look at a real example in the District with a medium size condo building located on Champlain Street NW (for the sake of anonymity between brokerages, we won’t disclose the building’s address). The building is a luxury condominium in the heart of Adams Morgan, with high-end lofts delivered in the mid-2000s. Of the 14 sales the past two years, nearly all listings in the building sell for or over list price within two weeks.
For listings, this condo building currently has 2 active listings and 1 under contract. The listing under contract was on market for 5 days and was listed by a full-service brokerage. The two active listings have been on market for 34 days and 113 days. Both active units are listed by discount brokerages. Both active listings have gone through price reductions (one of which was over 10 percent) and are currently vacant. A seller on a discounted 1 to 1.5 percent listing agreement has easily paid out the additional 1.5 percent in mortgage and condo fees over the days on the market. That one percent reduction in commission leads to less support, less marketing and visibility on the market, and in return, poorer results.
Now, what about the buyers? Let’s take the same example from Champlain Street NW. Each of the three listings may offer a buyer’s agent commission, even if they are listed by a discount brokerage. Buyers working with full service agents may not offer the buyer a rebate, but will take the buyer from contract to closing every step of the way. Buyers with a discount brokerage may see a lack of service as their agents move on to the next client with less of a focus on the contract phase, leaving the listing agent to take on all of the work.
In addition, a seller who is given the opportunity to choose between a buyer’s agent from a full-service brokerage or a discount brokerage may sway toward to the full-service agent. Why? The answer is simple: in a transaction where one party is discounted, the other side must pick up all of the work for both parties, while only one side is benefitted with a rebate. Thus, the industry’s perception of discounted brokerages leads to a stigma of poor service to the client.
Sure, everyone likes a good deal, but that doesn’t mean that every deal is a good one. In situations like our example here, discount brokerages can do lasting damage to how a market operates. For our Champlain Street example, the average days on market this year will skyrocket because of these two listings. The neighborhood will see a skewed list to sales price ratio, and the sellers will be burned from their experience of working with a discounted broker. All of this damage likely done to make a quick buck on commissions that never fully came to fruition in the full buying and selling process.
Full disclosure, I am a Realtor with a full service brokerage. Perhaps the answer seems intuitive to me, but I’ll let the consumer be the judge. When making one of the most personal decisions of your life in purchasing real estate, are we really willing to take a chance to score a quick buck?
Tim Savoy is a real estate agent with Coldwell Banker Residential Brokerage, Dupont Circle. The views expressed in this article are his, and do not reflect the opinions of the Washington Blade. Reach him at 202-400-0534 or firstname.lastname@example.org.