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“You get what you pay for.”
It’s a common refrain when real estate agents and brokers who charge a typical commission refer to their counterparts who charge less — the implication being that a lower fee results in lower quality service.
But low-fee brokers with experienced, full-service agents exist and can offer consumers great value, according to a report from the Consumer Policy Center, a think tank founded earlier this year by Stephen Brobeck and other senior fellows.
The report, “Reducing Real Estate Commissions: Are Low-Fee Brokers a Viable Alternative for Home Sellers?,” is written by Brobeck and CPC fellow Wendy Gilch. They found that, for those willing to comparison shop, such brokers can indeed be a viable alternative and potentially offer “superior value” to “traditional” brokers in the sense that they provide quality work for less.
For instance, a seller who hires an agent that charges a 1.5 percent commission rather than a 3 percent commission will spend $6,000 less on the sale of a $400,000 home.
Stephen Brobeck
“Many low-commission brokers work with successful, full-time agents who are either employed by the brokers or by independent firms,” Brobeck said in a statement.
“There is every indication that, for significantly reduced fees, many low-commission agents provide the same quality of service offered by successful traditional agents.”
Source: Consumer Policy Center
Some in the real estate industry say that traditional brokers are more likely than low-commission brokers to sell homes for higher prices, thereby negating the savings of using a lower-fee broker, and point to data showing that for-sale-by-owner (FSBO) homes sell for lower prices than those sold by traditional agents, the report notes. But Brobeck and Gilch stress that such data doesn’t account for differences between the sellers.
“FSBO sellers have lower average incomes and less expensive homes so are more likely to try avoiding brokerage costs,” the report says.
“More importantly, there has been academic research on the issue of whether traditional listing agents secure higher sale prices than do low-fee agents, and the finding is that they do not. To quote one study: ‘We find no evidence that the use of a broker leads to higher average selling prices, or that it significantly alters average initial sale prices.’”
However, at least a couple of studies have found that using a traditional broker reduces time on market “by several days,” the report added.
For this report, Brobeck and Gilch considered 45 low-commission or flat-fee brokers and narrowed in on 15 “because of their visibility and success.”
Of the 15, nine are low-commission brokers, meaning they charge less than a typical 2.5 percent or 3 percent commission, typically between 1 and 2 percent, for “full, personal services”:
- Clever
- Houwzer (merged with Trelora, but they maintain separate public brands)
- Houzeo (which also offers flat-fee services)
- Ideal Agent
- 1% Lists
- Prevu
- Redfin
- Simple Showing
- Trelora
Six are flat-fee brokers, meaning they charge a specific dollar amount — usually between $100 and $1,000 — to list properties on local multiple listing services (MLSs) and listing sites such as Zillow and Realtor.com and also provide generic information on homeselling. They get paid regardless of whether a home sells.
- Beycome
- Circle One Realty
- Cottage Street Realty
- Flat Fee Group
- FSBO.com
- Houzeo (which also offers low-commission services)
Brobeck and Gilch found that, unlike “traditional” brokers, low-fee brokers almost universally clearly disclosed their fees and specific services online.
To compare the companies they considered information provided by the brokers themselves, assessments of the firms by other discount brokers, third-party reviews, and data on customer satisfaction related to customer comments and complaints, such as that found on Google, Trustpilot, Yelp, Pissed Consumers, Consumer Affairs, and the Better Business Bureau.
They also asked for agent recommendations from six of the low-commission companies (Clever, Redfin, Houwzer, Prevu, Ideal Agent, and Houzeo) and called those agents, posing as homesellers.
Flat-fee brokers
Regarding flat-brokers, the report notes they “offer the potential of huge cost savings” to the tune of thousands of dollars, though most do not offer personalized services. One exception was Cottage Street Realty, which offers experienced agents who provide personal service but don’t meet with sellers or see the listing in person.
Wendy Gilch
“The expansion of different types of flat-rate services has provided new opportunities to owners wishing to sell themselves,” Gilch said.
Likely referring to the waning use of the National Association of Realtors’ no-commingling rule, she added, “The fact that major MLSs and portals, such as Zillow, no longer segregate FSBOs from Realtor listings helps these sellers immeasurably.”
Regarding specific firms, however, the report said there were not enough available reviews to evaluate them.
“There is insufficient information about flat fee brokers to make reliable judgements about individual companies,” the report says.
The report suggests the sellers that might find flat-fee brokers most attractive would be those under no time pressure to sell who want to figure out what their property is worth and maybe find an unrepresented buyer to sell to with the help of an attorney or lower-cost agent; knowledgable sellers who can manage the sale themselves with the help of an attorney or title com[any; or sellers and buyers who know each other and can negotiate among themselves and close with the help of an attorney or title firm.
“To best utilize these lower-cost options, sellers must decide how much of the home pricing, listing, posting, showing, bidding, negotiating, and closing they wish to take on as responsibilities,” the report said.
“In most cases, at minimum they will need some assistance from an attorney or title company. If they decide to delegate these responsibilities to a licensed agent, they should carefully consider the qualifications, track record, and reputation of the candidates they consider. Sellers under no pressure to sell, those with some knowledge of brokerage practices, and those who themselves find a buyer will be most likely to find low- cost flat fee services to be attractive.
“Sellers under pressure to sell (and often to also buy), those unfamiliar with brokerage practices, and those who want to minimize their involvement in the sale are most likely to prefer their own loyal, fiduciary agent. The latter group constitutes a large majority of all sellers.”
Low-commission brokers
The report found that nearly all of the low-commission brokers studied offered full agent services, though they differed in their local availability, type, cost of services and who provides them.
For example, the report says, Clever, Redfin, and Ideal Agent offer their services throughout most of the country and each has at least 2,000 agents, while Houzeo is also a national company but has a limited number of low-commission agents. The remaining five brokers are regional.
“At all companies, sellers are assisted personally by licensed agents,” the report says.
“We believe that the most important factor, apart from cost, that sellers should consider in deciding whether to use a low-commission agent is the quality of the agent.”
The report emphasized the importance of sellers assessing their prospective agents and brokers.
“[A]ll low-commission brokers employ at least some competent, experienced agents, which emphasizes the importance of sellers doing their own assessment of recommended agents,” the report says.
“That assessment should include not only recent selling experience and client reviews, but also information about how well agents explain the sales process and how involved they will be in the sale. With this in mind, low-fee brokers do represent a viable alternative for home sellers.”
The report advised sellers to look for brokers that offer:
- “Availability for full, in-person service including an initial meeting, home inspection, home showings, and the closing. Companies with agents within ten miles of the seller are preferable to those living 50 miles away.
- Agents who have been hired because of their experience and good client reviews.
- Agents whose performance is evaluated by their company using customer reviews.
- Commissions that are 1.5 percent or lower with low minimums.
- Good evaluations by sellers and by independent reviewers.”
Of the six companies from which Brobeck and Gilch requested an agent recommendation, they found that most such agents had had at least 10 sales the previous year, were positively reviewed by clients on Zillow or Realtor.com, and “in a phone conversation, convinced us they were a viable option.”
Asked why they only reached out to six of the companies, Brobeck told Inman, “We could not request assistance from companies operating outside the DC and Pittsburgh areas because all companies require inclusion of much information about the owner and the home, and we didn’t feel it was reasonable to ask others, besides Wendy and me, to do so given privacy issues and the possibility of their being subjected to aggressive phone and email marketings.”
The report singled out Clever, an online referral service with more than 15,000 partner agents, as unique among low-commission brokerages for explicitly only recommending agents with strong credentials, including that they must be full-time professionals with more than five years experience, be favorably reviewed by past sellers and possess “extensive local market knowledge” — criteria many agents at traditional brokerages would not meet.
Clever, the report added, is also available nationwide, charges a 1.5 percent commission with a low minimum sale price, offers sellers the ability to pick among experienced full-time agents, and has consistently positive client reviews.
“No other low-commission broker shares these characteristics,” the report said.
“Trelora, Houwser, 1% Lists, and Simple Showing all charge lower commissions but limit their services to certain local areas.”
The report notes that Clever partner agents pay a portion of the 1.5 percent commission to Clever and that one might question whether such an agent would work as hard for a 1 percent net commission as for a 1.5 or 2 percent net at a higher-cost brokerage.
“Three considerations — there is intense competition for clients, agents depend on referrals from satisfied clients, and Clever monitors the performance of its partner agents – suggest that this risk is worth taking when the savings is usually considerable,” the report says.
Asked whether anyone in the real estate industry helps finance the CPC or its research, Brobeck told Inman, “No! Financed entirely by the Fellows.” The CPC has a similar disclosure on its website.
