Evaluating Real Estate Company Fees

Q: I have noticed a local real estate company with a different approach.
 

It appears that they are doing something other than charging a standard commission? Can you comment on this approach?

A: Thanks for your note. I took a look at the website you included with your email (which I have chosen not to include in your letter). This company falls under the category of discount broker. The broker is advertising a series of flat fees in order to list your home.

There is a $500 charge to list your home in the local multiple listing service (MLS), and a small percentage of the sales price as a "negotiating fee." If you want a lock box, it’ll cost another $100. There's no mention of whether the agent actually turns up to do a showing if you choose to forego a lockbox.

But if it is like traditional discount brokerage firms, the seller typically does the showings, and the agent collects $1,600 (the fee disclosed on the web site) as the fee for putting it into the MLS and processing the paperwork.

If a buyer's agent brings the buyer (as opposed to someone finding your home while wandering the streets), you'll pay another 3 percent commission (or less) to the buyer’s broker.

I think it's amusing that the site proclaims that if you use another agent you'll pay 7 percent commission no matter who brings the buyer. The average commission paid to a real estate agent is about 5.1 percent, according to the National Association of Realtors.

Let’s compare the numbers: The website shows how much you'd pay for a $300,000 house sale using the company (a discount agent) versus a traditional agent. If you use the discount agent, you'd pay $1,600 plus $9,000 if you have to pay the buyer's agent, for a total of $10,600.

If you had to pay a 7 percent commission, selling your home would cost you $21,000 in commissions. This makes it appear that you would be saving $10,400 by using the discount broker.

However, if you use the standard commission rate of 5.1 percent, you'd only be paying $15,300, a savings of just $4,700.

Now, I'm not against saving nearly $5,000, or even $10,000. But for the extra cash, you'll get a full-service agent who will help you handle all aspects of selling. Discount brokers require sellers to act almost as though they’re selling for sale by owner (FSBO).

If you want to be a FSBO, there are less expensive places to go than this service. But if you’re not ready to do the agent’s job in addition to managing the seller’s responsibilities, then you should cough up the extra $5,000 and hire a full-service agent.

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