Most people are aware that, for the most part, real estate commissions for Realtors® can be negotiated and vary in many ways. For those who don’t know, commission rates are X% for the listing agent (the one who works the seller) and X% for the buying agent (the one works with the buyers). Occasionally, a real estate agent works with BOTH sides and might receive commissions for both sides or any negotiated fee. However, what happens when Real Estate Agents compete online and offer you a discount to secure your business?
Are you really the one getting “a deal”?
REFERRAL AND DISCOUNT WEBSITES
When looking for a real estate agent, most people start with the internet. If you find yourself online searching for an agent, you may come across several websites announcing agents are competing for your attention and business. Many times these websites also offer you a discount. Sounds good, right? I mean, if these agents want to give you a cut of their commission in exchange for your business, that sounds like a win-win!
While these agents certainly have that option to discount their work to earn your business, it is prudent to understand how this process works and the potential impact it can have on your home buying or selling experience.
CAN YOU TRUST REFERRAL WEBSITES
Referral websites for real estate agents are simply advertising sites. Obviously, their marketing strategy is to promote agents in your area who they say have stellar reputations and can be trusted to do a great job for you. However, a monthly subscription and/or referral fee paid may be the only qualifications required to be listed on most of these sites. Some sites may include an additional requirement of no misconduct marks noted on the agent’s license.
These “qualifications” are minimal at best. If you are looking for good referrals for a local agent, your best bet would be to ask around for recommendations from people you know or find a Facebook group of local residents and request information on agents in your area.
REPUTABLE ORGANIZATIONS OFFERING A DISCOUNT
There are companies, such as USAA, who offer a flat discount when you use their registered agents. In an organization known for its loyalty to customers or overall positive reputation, this may seem like a great option. Again, remember that “their” agents are little more than Agents who are paying to market through them. As a result, agents gain access to loyal followers who trust the company’s recommendations.
United Veterans Home Loans also operates in this way. In some cases, these companies promote the benefit of having an “assigned” agent. In reality, an “assigned” agent is identified as the one next up in the queue.
If the agent you want to use is not on their “referral” list, they might discourage you from using that agent and instead redirect you to one who pays a kickback to the company. (i.e. a monthly referral fee and/or cut of the commission in exchange for guaranteed leads)
While the companies actually announce that these agents are highly qualified, some just might not be. Either way, it is still important to do your own due diligence.
THE COST OF BEING A DISCOUNT REALTOR
Agents who have signed up with these referral websites, agree to pay a fee. It is big business as these referral fees are anywhere from 20% – 40% (or more) of the commission received. The question you might be asking is how this impacts you. Many argue that these fees to offer discounts and receive referrals is simply the cost of doing business for Real Estate Agents. I agree. It is simply advertising. Very expensive advertising.
However, it is wise for you, the potential client, to be aware of the expenses agents are putting out for the purpose of getting the business of a client shopping for a discount. Let’s put some numbers (random – for illustration purposes) to this:
Assume an agent, found through a referral website, receives $10,000 for a transaction. The agent now credits you, the client, $2000 as advertised on the referring company’s website. That leaves a balance of $8000. Out of that balance, the agent now has to pay [let’s assume, and how this is paid might also vary from site to site] 25% to the referring website. The agent is now left with $6000. Additionally, many agents pay what is called a split to the employing brokerage. This can be 20% or more. At a 20% split, it leaves the agent $4500. Of this remaining amount is deducted all the overhead, taxes and other expenses required of running a business. Not to mention their compensation for the time and work put in with the client to buy or sell the property. In other words…they’re not bringing home much bacon.
In a nutshell, many of the Agents are not making much of a profit on the sale of a property with clients acquired through discount sites. The Agents who utilize this type of marketing are usually just getting started or may not have a thriving business or marketing machine in place. Working hard, long hours for very little profit does not create motivated agents. As soon as a non-discounted client arrives, guess who is most likely going to get the best attention and service? That is where the greatest impact happens on client’s end.
In searching for a real estate agent on a referral or discount website, please be aware that:
- You may not be getting a highly qualified or reputable agent. (Still, in some cases, you may find a great agent.)
- Since they are giving up a majority of their earnings to secure your business, the agent may not be as motivated to give you their best work or attention.
Agents with great reputations and who offer top-notch, quality services are easily found through word-of-mouth, the local BBB or review sites. If you are looking for a discount on fees, ask the agent if they offer anything, which will be offered at their discretion. However, are less likely as they are busy because they are good at what they do, or have a very personal interest. In either instance, the key is to be educated and proactive in finding the right real estate agent for you. I recommend reading this blog post on how to find a good agent.
Looking to buy in the Colorado Springs area? I’d love to chat with you! Call me today at 719-219-9739