Part 1
 

The basic question is: Can a home be sold without the help of a competent, full-service Realtor? Honest answer: Of course it can, but does it make economic sense to do it that way?

I’m sure by now you have been solicited by numerous discount/cut rate/limited service/flat fee brokerages.

They will offer to put your home in the MLS for a flat fee, ranging from $149-$500. That may seem like a good idea. You may be thinking: “all I need is exposure in the MLS! I will allow Realtors to show my home and save around 3%.”

Just remember—you get what you pay for. Is this plan really wise?

The Discount Broker's Dirty Little Secret.
 

Have you ever heard of a loss leader? It’s when a grocery store advertises milk for $1.99 a gallon to get you into the store. They actually lose money on the milk, but make it up on all of the other groceries you buy. It’s a form of bait and switch.

Well guess what? The fee the discount broker charges is also a loss leader! They cannot possibly run a business and make a profit charging you $299 to put your home in MLS. So, how to they make up for the “loss”? They are using your home as “bait” to get Buyer leads. Each buyer they pick up could be worth thousands to them. For example a $200,000 buyer could result in a $6000 commission ($200,000 x 3%=$6000).

After that discount broker takes your $299-$500, what incentive do they have to sell your home? NONE!

The longer your home stays on the market, the more buyer leads they will procure. They actually make more money the longer your home lingers on the market. That is their business model. Besides the pure economics just not adding up, there are other considerations you need to take into account.

Are you prepared to negotiate directly with…..

…The Real Estate Agent representing the Buyer? (Realtors negotiate for a living and are most likely much better at negotiating than you)
…The Buyer’s attorney?
…The Home Inspector?
…The Buyer’s lender?
…The Appraiser?

NONE OF THESE PEOPLE ARE ON YOUR SIDE. THEY ARE ALL WORKING FOR THE BUYER.

Then, there is all of the paperwork and processing involved. Real estate transactions have become more, and more complicated over the years.

More about that in part 2 of The Discount Broker Folly