I was recently part of a short discussion on Trulia Voices regarding agents that discount their commission verses agents that charge a “full” fee. The discussion was directed towards sellers though the vast majority of respondents were agents. The overwhelming majority opinion from the other real estate agents was that “full” fee agents were better than an agent that would discount their commission. I, of course, disagreed with this belief. It was a little disturbing to see the overwhelming negative opinion agents have toward “discount” agents. The discussion got me thinking about the issue a lot more and I’m going to try to break it down here.
Are full fee agents quantifiably better quality than their “discount” counterparts?
The Real Estate License
Every practicing real estate agent in this state must be licensed. The “discount” agent (let’s call him Agent D for discount) and the “full price” agent (let’s call him Agent F for full) both have had to do the state required educational coursework and pass the licensing exam. From this prospective, each individual agent has one common denominator. They all have gone through the same coursework to get their real estate license.
Discount Vs. Full Fee
Per state licensing law, in order for an agent to conduct real estate services, they must operate under a licensed brokerage. A brokerage would be any company that offered real estate services like John L. Scott, Windermere, Redfin, Skyline or VerraTerra. Brokerages will choose to operate under a full fee or a discount model but rarely both…, at least publically. Some companies advertise which model they operate under. Redfin advertises rebates to their buyer clients. VerraTerra advertises flat fee listing and buying models. Other companies don’t advertise any business models. They simply call themselves “full service” brokerages. This usually means they are “full fee” brokerages. There is no definition of what full service actually means. VerraTerra may be labeled as a discount brokerage because of our flat fee models, but I will argue that we provide as much or more services than the “full service” brokerages. So can we call ourselves a full service, discount brokerage? Regardless, most agents will presume that an agent at a full fee brokerage is a full fee agent, and an agent with a discount brokerage is a discount agent. Since an agent can only work under one brokerage company at a time, they must belong in one camp or the other. So in order to answer the question at hand, we must also answer whether or not full fee brokerages are quantifiably better than discount brokerages.
Each individual person brings their own work experience into the mix so someone could argue that Agent D is a better agent than Agent F (or vice versa), but it would be difficult to prove a correlation between previous work experience and whether that person chooses to join a discount or a full fee brokerage. The same can be said for previous knowledge. A person who worked in escrow or construction for years before becoming an agent definitely would bring more relevant knowledge to the table than someone who did product management for a cell phone company. However, neither work experience nor previous knowledge is a reliable indicator of which business model this agent would implement. It is just as likely that the former escrow agent decides to implement a full fee model as they would a discount model. Although relevant work experience and knowledge would likely give you a good agent, neither trait is an indicator of what kind of business model they would implement.
The Brokerage / Company
A common selling point I’ve heard is that agents from big name brokerages are better educated, better supported, etc. etc., all of which supposedly makes agents from the big name brokerages better than those that aren’t from the big name brokerages. In my years of working with other agents from big name brands and small independent brands, I found this belief to be unreliable. I have worked with and know many agents from the big name brokerages that are very good at what they do and are great people overall. I’ve also worked with agents from smaller name brokerages that have out classed, out smarted and out worked plenty of agents from the big names. The worst agents I’ve had to work with have come from both the big and small named brokerages. I’ll dive into the details of the different kinds of brokerages in a future post.
Most real estate brokerages make money from the monthly fees they collect from the agents they have working for them and commission cuts the office takes from their agents’ sales. As you can see, it’s a volume model. The more agents they have, the more fees they get and the more opportunity for commission cuts. It is in the company’s best interest to recruit as many agents as possible. By doing so, you’ll get agents that are awesome, horrid and everything in between. This can apply to any brokerage, full fee or discount. Which company an agent works for does not accurately tell you anything about the quality of the agent itself.
Then there are the agents that go from a big name brand to a smaller name brand. If the brokerage company actually mattered in the quality of the agent, then that would mean agents from the big name, full fee brokerages are all stellar and those from the small, discount brokerages are terrible (which was the consensus of most of the agents on the Trulia Voices discussion). So would a stellar agent from a big name, full fee brokerage instantly become a horrible agent if they decided to move to a discount brokerage? Would a horrible agent from a discount brokerage instantly become a stellar agent if they decided to move to the full fee brokerage? I don’t think so. Determining the quality of an agent simply based on the type of brokerage they belong to should be quite difficult, inaccurate and frankly, foolish.
This was by far the most used catch-phrase in the discussion and is quite humorous to me. Let’s face it, real estate agents aren’t the most beloved profession in our society. Many people equate us as dirty or rotten and no better than your stereotypical used-car salesman. Well this perception must have come from somewhere. There are countless horror stories from consumers regarding a real estate agent they had. Most of them complain about their agent in relation to the service and work they provided compared to the amount of money they paid their agent on the transaction. There are countless buyers and sellers out there that have paid the “full” commission price and have been left mad and frustrated that they DIDN’T get what they paid for. Sure, the same can be said for agents that discount, but to base an argument that full price agents are better than discount agents primarily because you get what you pay for is ridiculous .
Discounted Real Estate Fees vs. Full Price Real Estate Fees
Let’s examine the label of a discount agent and a full price agent. A discount, by definition, is a reduction made from a list or regular price. In practice, the discount label is thrown onto someone that charges less than 6% (or 3% per side). By law, real estate commissions cannot be fixed or standardized. Therefore when agents talk about commissions, it’s always called the traditional or the usual amount…which in this area is 6% paid by the seller (half to the listing agent and half to the buyer’s agent). Given there is no standardized price, who is to say what is or isn’t a discount?
Hyundai vs Honda and Toyota
Could a discount agent do everything a full fee agent could? Yes. Could the full fee agent do whatever the discount agent was doing? Of course. There is no law forbidding them to. It basically comes down to choice and the difference between perceived and actual value. Take the car manufacturer Hyundai for example. General perceived value (in my opinion) was that it was an inferior vehicle to the likes of a Honda or Toyota. In years past, Hyundai’s marketing message was one of value. People bought a Hyundai because it cost less than a similarly equipped Honda or Toyota. Looking at Consumer Reports’ historical reliability charts, it was true that Hyundai’s overall reliability was inferior to that of Honda or Toyota. You get what you pay for!! However, year after year, Hyundai’s reliability got better and yet they still maintained their value position as being less expensive than their competition. Fast forward to present day. One of Hyundai’s newest cars was one of only two, the other being a BMW 5-series, to get a 5-star crash rating from the National Highway Traffic Safety Administration. You get what you pay for!! According to a recent press release by the Insurance Institute for Highway Safety, Hyundai is one of two car manufacturers with the most vehicles (nine of them) that earned the 2011 Top Safety Pick award. More than Toyota. More than Honda. The Hyundai brand is arguably equal or better to their competition now but is still priced lower, sometimes by several thousand dollars. YOU GET WHAT YOU PAY … wait.. .what? Carry this analogy back over to real estate and real estate agents. A discount agent can be just as good, if not better, in every aspect, but just happens to cost less than a “full fee” agent. How much they charge you, has no bearing on whether they are great or horrible agents.
So are discount brokerages automatically worse than a full fee brokerages? Are full fee agents quantifiably better quality than their “discount” counterparts? I’m going to say no and hell no. To imply such a thing is like saying a white, cotton t-shirt bought from Nordstroms is automatically better than if it was bought from Walmart. How do you know the two weren’t made from the same manufacturer? If after reading this entire article, you still want to believe that an individual agent is automatically better than another simply because of the price they charge, please tell me why in the comments below.