California Sees Surge of Discount Brokers and Listing Services

There’s a new trend developing throughout the real estate market in California, and it has many agents and brokers up in arms. Last month we discussed a controversy which started in Denver over new listing services offering discounted flat rates up front in our article “Should You Disclose Commission Rates in Listing Contracts?”, but since then we’ve noticed a handful of similar programs starting up here in California – some offering to sell a home for as low as 1% commission. Now, many agents and brokers are wondering if this just a fad, or if the days of the standard 3% per side commission are a thing of the past.

Recently there have been a growing number of sellers who want to save some money when it comes time to sell a home, and a new wave of discount real estate listing services have emerged throughout California to service them. Mortgage professional Kevin Leonard of Temecula, CA, for example, has been partnering with numerous Brokers throughout Southern California to offer rates as low as 1% commission for both the buyer’s and seller’s side of a sale.

The group of industry professionals advertise heavily on the internet, but also try to reach everyone by using mail through the post office. The team has been gaining traction with their discount real estate agents that offer thousands of dollars in savings for homeowners who list their properties with the Realtor group.

As of now, Leonard has partnered with brokers ranging from Costa Mesa and Newport Beach down to San Diego.

While this may seem like a dream come true for those trying to sell a home, many traditional brokers still argue that their services are superior – bringing superior skills and service levels to their clients compared with discounters.

Whether or not more consumers will choose to go with these discounted brokers is still unknown, but this will certainly remain a hot topic as we move into the spring and summer – when the market typically picks up speed.

Do you believe discount brokers and listing services will change the RE game in California? What are your thoughts?

  • If you are a warehouse and provide no agents support, this model will work(temporarily), we all now what happened during the last downturn to companies like Help-U-sell, they simply disappeared because when the it became more challenging to sell a home in a down market, they simply could not compete with professionally experienced brokers….

  • Bruce Cathcart

    It has been tried before…anybody remember “Help-U-Sell”? The truth is that a brokerage firm cannot survive and support itself on just a 1% commission structure. Likewise, it will not attract top agents to take the “pay cut” associated with working for 1%. Likewise, if they want the cooperation of other agents, they will have to offer an additional 2 – 2.5% (at least) making the actual commission paid by the seller 3 to 3.5%. Discounted fees will result in discounted service. It is just too hard to make a decent living let alone cover your liability working for 1% commission. Save that deal for family and friends!

    • Patric Barry

      Help U Smell was a nightmare …….. they didn’t do the work that a typical listing broker would do, and the selling agent ended up with pretty much having to represent the buyer (getting a loan done, walkthroughs and inspections, repairs, access for termite and home inspections, and more) and the listing side (arranging termite, keeping sellers informed and the typical listing obligations) fell on the selling agent. It was a nightmare.

  • jerryrealtor

    If you are in the bay area with average prices of 1,200,000 closed sales 1% is still $12,000!
    San Diego 1% of the 650k medium price is still $6500.
    But a mobile home in Menifee is 45,000 at 1% is…. $450 bucks!?
    I would like to see a ‘listing price’ insurance policy. You pay 6% listing fee and you are guaranteed your estimated net represented at the listing time. (Conditions/restrictions would apply) but it lets the seller KNOW they are getting a specific amount of money if they list at the price the agents feel their home is worth. Would require at least 3 different brokers provide a price opinion and the payment of a ‘insurance fee’ to the insurance company at listing time. A few other caviats to make sure everyone plays fair. But that would crush the 1%’ers! I will take every listing I can and negotiate with any seller in good faith the fee’s they will be charged. but if they are not realistic in their pricing and service expectations… then I will just refer them to the 1%er and let them sit on the market. 462 people served doesn’t happen by accident, it happens by career choice! Real Estate is my career and I should be paid for not only what I know, but more importantly ‘who I know,’. Company’s who list at 1% know nobody! and are probably overcharging at 1%!

  • RE_Insider

    We’ve received a handful of emails from our readers commenting on this story, and wanted to share some with you. One reader wrote:

    I noticed an interesting trend in Australia where the brokers:
    a) do not share listings in an MLS;
    b) do not cooperate with other brokers (they say that they do, but they don’t);
    c) they take a 3.3% commission in their listing, of which 10% of the fee (that’s the .3%) as the prevalent rate;
    d) the seller pays the advertising expense. The broker arranges billboards, photos, retail ads, website fees, and the seller is billed for the expense regardless of whether the property sells. The ads and billboards all feature the subject property, and the broker’s name and logo, and the average advertising fee is about $20,000 in a market where ‘affordable’ seems to be $800,000.

    It’s an interesting dynamic and relieves the risk to the broker, yet ensures his fee and encourages a seller to relist upon a listing’s expiry.

  • RE_Insider

    Another reader said:

    As in most strong markets, I think this surge is one of the indicators of a “seller’s” market. California real estate has rebounded well and many homeowners are finding themselves in a strong equity position. In my opinion, in markets like this, discount brokers typically emerge. They are attractive to homeowners because they can save money however they aren’t attractive to more experience agents. As a practice, agents who offer high level service and experience do not come cheap. For example, an agent with 20 years of successful real estate experience would not provide the same for 1%.

    They would demonstrate their unique selling proposition to a homeowner and likely contract for a higher commission and in most cases definitely worth it.

  • Michael Layton

    If you had a legal problem would you want a Lawyer who only charged a flat $1,900 fee or would you want the most qualified person working on your case? Paying more does not always mean you get the best but come on, there is a difference between filling out forms and really working a complex issue with skill. There is some room at the bottom – Uhaul trucks serve their purpose – but if you want skilled negotiation and problem solving you won’t find it for rock bottom rates.

  • MIKE CRISTIANO

    Discount Brokers Are Just prostituting The Real Estate Business…..
    JUST PROVIDING A CHEAP TRICK!!!

  • RE_Insider

    Another reader commented:

    Ever since 1978 when I first got into the real estate business, there have been cut rate listing brokers….more prevalent during sellers markets and fewer during buyers markets. In this seller’s market, there is no doubt that the number of cut rate brokers is expanding. But nothing really has changed, they still give poor or no service at all to sellers. They email a listing form, upload it on the MLS, drive by photos, email an offer to the seller, email the accepted offer to the escrow and wait for their commission check. Many do not bother with a sign, lockbox or do any marketing at all.

    A buyers agent is on his own to access and show the property as best he/she can. Many of these buyer’s agents are aggressive and browbeat the seller to find out how little they will take especially if they have a cash buyer and quick escrow to offer. Despite the fact that they have no official relationship with the seller.

    Many sellers have reported that they were very dissatisfied with this lack of service. They feel that the commssion they paid for the service they received was too high at 1%. They also mentioned that the 1% broker also represented the buyer at 3% for a total of 4%. They feel that the agent represented the buyer more than they represented the seller. Sellers felt that they were left high and dry with no consultation or expert advise.

    I always enjoy meeting with a seller after they have had an experience with a 1% agent. It’s kinda like shooting fish in a barrel. When you explain what you do to earn your commission, they marvel because the last agent did nothing. And sometimes the seller will recount how much they had to do and then when the sale fell through, they were not looking for a repeat experience. Experienced agents with powerful listing presentations show their professionalism. This an ideal market to be an experienced, professional agent.

  • RE_Insider

    One reader said:

    Back in 2004/2005 a brokerage came in to Huntington Beach and surrounding areas advertising 1% listings on wraps around the trash cans all around downtown and the pier. Soon they were gone! I’m not so worried. I’ve watched it happen tens years ago. Let a few of the discounted brokers come across some litigation and they’ll learn representing clients at 1% can get costly with just one lawsuit whether it’s your fault or the neighbors! There’s a saying you get what you pay for.

    Cheap clothing is shipped in daily from China and yet Nordstrom still survives. Why? You get what you pay for like quality, service, convenience and most importantly a face and reputation to go to when the deal gets tough and they do get tough on occasion. Do you always go with the lowest bid in construction? Most people get three bids and most of the time go in the middle because we like to save but a re leery of “too cheap” and that comes from past experiences with “too cheap”.

    I provide “Nordstrom service” and my clients return. I represent my client as if I was getting paid 10% commission. Will the discounters do the same? I’m here to cover my client in all ways thinkable it not just about commission, the focus needs to go toward my service. I’m not worried.

  • RE_Insider

    Here’s another comment:

    This article is quite interesting to me as I am a real estate broker that started the discount brokerage system back in 1971 in san diego, ca. The program has great potential not just in this economy but in any economic climate. When we first started the concept under our company of Twin Palm Realty in the communities of clairemont and mira mesa located in san diego. The company started with only one listing at the flat fee commission then quickly grew to 30 listing wiithin a month. The number of listiing continued to grow each month from 1 listing a day in 1971 to a total of 3 and a half listing per day on a consistant basis from approx. 1974 to 1978. This program of success was met with great resistance .from the National Association of Realtors , California Association of Realtors and local real estate boards and MLS services. Company funds were our only source to retain the best attorneys and accountants possible to withstand these outside pressure groups. The various groups were fighting to restrain the company growth and popularity stating it was unfair competition and violation of association rules and regulations related to their fixed pricing,, division of fees and access to their board MLS services. In 1978 the courts ruled in favor of the associations but later on appeal in 1980 the prior ruling was overturned. I believe that today with the changes in Americans economy a broker willing to take on the challenge of working in an honest and beneficial manner for all of its clients and its community will no doubt become a successful brokerage company.

  • LC

    Discount Brokers are not the only ones putting a “greedy” title on agents. No wonder buyers want to run to the hills, and sellers do not know who to trust. You’ve got websites that devalue your listings. Check the value of one of your listings that have been dispersed out to name brand website via the multiple listing service. It is unbelievable to me that these websites, while serving as advertising your listing, revalues a property, they have never visited, do not know neighborhood, or upgrades. So while you legitimately have a listing valued at $150,000 and comps to prove your list price, you look at same listing on one of these name brand websites and see they have devalued your $150,000 listing to $132,000 so potential buyer says, name brand web site says this house is only valued at X amount of dollars, that is all I will pay. I am sure the next step will be these websites acting as the listing service. Who needs Realtors when you can list your property with the latest name brand website. Its coming and it is scary.

  • I hope these are NOT Realtors responding to this story. A brokerage is a brokerage folks–fees charged are all negotiable and there is NO set number. Some companies choose to list at a rate commensurate with their services and ability to keep the doors open. We all have different levels of compensation which the individual brokerage will set. Any attempt to set a specific number amongst competing firms is a violation of Federal Anti-trusts Laws. Be very careful what you say to a fellow broker about commissions–Go directly to jail and not collect any fees at all!