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Wednesday, November 5, 2014

The Press, With Its Limited Understanding of Real Estate, Is Easily Manipulated

[Published Nov. 6, 2014, in the Jeffco editions of the Denver Post's YourHub section. An abbreviated version also appeared in five Jefferson County weekly newspapers.]

Those of us with real estate licenses (and Realtor membership) are accustomed to misconceptions among the public regarding commissions and other aspects of our industry. Some brokerages are happy to play on those misconceptions to promote their discount model on the premise that sellers get nothing by paying “traditional” brokers a higher commission.

Since real estate brokerage is not as straightforward as one might think, one can only wish that media would balance the quoting of these discount brokers with interviews of someone like myself who can provide some perspective of the topic.

A recent example was a Channel 4 News segment on Oct. 29th which featured two discount brokerages. The segment sounded like a paid commercial and probably helped to sell one brokerage’s only active listing, which had been on the market over two months but which sold two days after being featured on the broadcast.

The premise of the segment was that you don’t need to pay a “typical”
real estate commission to sell your home. One company’s 3-tier listing commission was described in detail (with on-screen graphics): $1,995 to do only the paperwork on a transaction, $2,995 to provide services without putting the home on the MLS (what a waste!), and an additional 2.8% to put the listing on the MLS so everyone can know about the home. No other agent or brokerage was interviewed in the segment.

There is certainly a place in our industry for brokerages which cater to the belief that full-service brokerages are overpaid for listing and selling homes, but it’s painful to see the media overstate the commissions such brokerages earn and to portray that the only difference is the amount of commission charged.

Neither side, however, will "win" this argument.  Enough people will sell either "by owner" or with a discount brokerage to support the argument that you don't need to pay a “higher” commission. At the same time, it should be noted that such sellers will never know what they might have gotten had they hired a full-service brokerage that does extensive marketing and so much more.

In my opinion, the CBS4 piece is faulty. The stronger a seller’s market is, the more important it is to have the home listed on the MLS to increase exposure and the chance of getting multiple offers. For example, our brokerage listed a home for $249,000 that went under contract for $282,000 cash with back-up offers in place in case the winning bidder had buyer’s remorse — which he did!  Because of the back-up contract which our agent negotiated, it was not necessary to put the home back on the market when that contract fell. I can’t imagine a seller without representation or with limited representation by a discount broker achieving the same result.

It's in situations like this that you really need a full-time and experienced listing agent. And you need help after going under contract fighting off unreasonable inspection demands or an appraisal that comes in below the contract price.

Lastly, discount brokerages like to feed the misconception that a 6% listing commission is "standard" -- 3% for each side of the transaction. In fact, the national average is under 5.5%, and many agents, like me, discount our commission when we sell a listing ourselves and will give an additional discount if we get to earn a commission on the purchase of the seller’s replacement home.  With these discounts, I have myself listed a home for as little as 3.5% -- quite competitive with the 2.8% plus $2,995 quoted by the discount brokerage. 

Here's the link for the CBS4 segment referred to above:

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