Back in the early 1990s, someone got the bright idea that maybe homeowners didn’t want to pay a 6 or 7 percent commission when they sold their home.

Of course, homeowners had been selling “by owner,” as “FSBOs” for years. But as families became increasingly busy, selling on your own, taking on both the job of the agent as well as the job of the seller, didn’t work for everyone.

But what if sellers contributed some of their “sweat equity” in exchange for a lower commission rate? Some of the early discount brokerage models assigned a dollar figure to each phone call the real estate agent made on behalf of the seller, and paid that back in the form of a “rebate” at the closing.

Over the years, the concept of discount brokerage has been refined, and has begun to gain momentum, as discount brokers have offered to work for just a commission of just 1 or 2 percent. The average commission has now dropped to 5 percent, although many real estate brokers have now added certain additional fees to the transaction. In some cases those fees are for handling the paperwork of the transaction or other processing fees, and are not counted as part of the total commission.

The Internet has helped the cause of discount brokerage tremendously — helping sellers to get the word out about their home and helping the discount brokers to spread the word about their costs and services.

The National Association of Realtors contends that just a small number of sellers use discount brokers.

“It’s always been known that discount brokerage services serve a small market,” explained NAR spokesman Walter Molony. In a 2006 survey, 83 percent of homeowners who used agents used full-service agents.

And the rest? “Nine percent used limited (agent) services, and another 9 percent use minimal services, including simply putting the home on a local MLS,” Molony explained.

Flip that around, and you’ll see that nearly 20 percent of homeowners are using agents who are not full-service. That’s a wide-open market for discount brokers, says Joe Fox, CEO of Iggy’s House and BuySide Realty, both based in Chicago.

According to Fox, 62 percent of buyers in 2004 found a home without an agent. That seemed like an opportunity. Fox did some research and discovered that Zip Realty offered a 20 percent of the commission back to buyers, and 25 percent of the commission back to sellers.

Fox and his brother started BuySide Realty and decided to offer 75 percent of the commission back to their buyers.

Steve Bernard, 30, lives in Orlando. He saw an ad in a magazine for BuySideRealty.

“I went to the website and did some research on the product. You need to know a lot about what you’re getting into,” he said. Bernard ultimately got preapproved for a loan through the site and used the site to search for a home.

He ultimately bought a 4-bedroom, 2-bath, 3,300 square foot house in central Florida for $309,000.

“It was a very pleasant experience. Josh Katz, the head broker for the Florida area, took my hand and walked me through the process. He really went above and beyond. The majority of the time, you deal with them on the telephone,” Bernard explained. “His experience was helpful in negotiating for the property. His negotiation skills are excellent.”

Bernard ultimately saved $9,000 on the purchase, which represented his 75 percent of the commission earned by BuySide Realty. “You can either take your (money) as a check two weeks after the closing, or take it as a credit at the closing. It reduces the down payment and some of the other non-recurring costs that are associated with the loan,” he said.

BuySide now returns an average of $11,000 in commission to buyers who use the service. To attract more buyers, Fox has recently launched Iggy’s House, which offers free listings on the local multiple listing service to sellers.

“We’re doing it as a customer acquisition tool. We know that if they can list for free with us and we help them sell, they’ll want to buy another home. And we can help them there with BuySide Realty,” Fox said.

Iggy’s House allows sellers to post their own listings, open house notices and descriptions. You can upload video of your house or photos. They also offer sellers a free voice mail listing which tells buyers more about the house and automatically emails any message the buyer leaves to the seller.

“Last year, 1.2 million people tried to sell their home by themselves. 800,000 succeeded, 400,000 didn’t. But 435,000 people used a discount brokerage service. All of those people are self directed and they can list their home with us, on their local MLS, for free,” Fox said. The site currently has more than $1 billion worth of property listed.

Molony agrees that many of the services provided by discount brokers like Iggy’s House, BuySide Realty and Zip Realty might be the same as those provided by a full-service agent.

“They might have fewer bells and whistles,” he observed. He added, “I think selling your home without an agent is kind of like representing yourself in court. Clearly, people do it, but I wouldn’t do it myself.”

Sept. 12, 2007.