The Lure Of The Discounted Commission
Let's talk discounted commissions. There are plenty of them out there; cheap and plentiful and leading sellers and buyers to believe they are getting a deal when, in fact, they are losing money.
Let us explain.
The only way a discount agent can get listings is by being the cheapest option. Discount agents can't compete with knowledge, experience or marketing. A lower commission the only thing they have to offer. It is the only tool they have in their arsenal.
When we list a property, a large portion of the commission goes back into marketing that property. Because they aren't getting the same commission, discount agents can't afford to market in a way necessary to get more money into the seller's pocket. Typically, discount agents want to price homes lower than market value. An underpriced home will sell quickly with limited marketing, thus saving the discount agent marketing costs. Even in a strong market, more marketing and exposure will generate more showings to potential buyers and get a higher selling price. Discount agents aren't willing to spend the marketing dollars to get more people through the home and maximize the total net dollars sellers put into their pockets. Unfortunately, this hurts sellers where they are most vulnerable...the bottom line.
We recently listed a home and were contacted by an agent who stated that the property we listed was overpriced by at least $30,000 and would never sell within our listed price range. His justification for this low price was based on the sale prices of houses that weren't comparable to the listed property. Our listing actually ended up selling for 99% of list price. This shows that an agent who isn't in the know can underprice a property by at least $30,000 to $40,000. If our clients had hired this agent to list their home, they could have listed their property for 0% commission and they still would have lost an extra $5,000 to $10,000 instead of working with us and paying a full commission and putting more money in their pockets.
On the flipside, if a buyer is working with this agent, he's telling his buyers everything is overpriced. All the offers he brings to the table are under market value and no seller accepts them. The discount agent is setting his buyers up with unrealistic expectations which delays their purchase of a property. Buyers can waste weeks or months trying to buy a property with this discount agent and all the while the properties that come out are priced higher and higher and eventually buyers are priced out of the neighbourhoods they want to be in. It's a shame for buyers to have to give up their dream homes because they have decided to work with a discount agent.
It's always nice to think you're saving money but you need to look at the bigger picture. That discounted commission may end up costing you tens of thousands of dollars. The bottom line is this: if someone can't even negotiate their own commission, how are they going to negotiate on your behalf and get you the best price possible for your largest financial asset?