How Discount Real Estate Broker Models Work
If you want to understand discount real estate brokers, you first need to understand the traditional real estate commission model. The typical real estate commission is 6%, which is split between the listing agent and the buyer’s agent, and their respective brokerages.
So why is the national average commission rate lower than that? Well, as discount brokers and agents who work for less than the conventional commission rate have become more common, the average commission has dipped well below 6%. According to one study, the median income for an agent in the United States as of 2020 was $42,246 – representing the lowered commission rates – while the top ten percent earned $64,198, more than 50% more.
You’re probably wondering how discount brokers differ from conventional agents, and what kind of services they can offer if they’re taking so much less money. That depends on what kind of discount broker you decide to work with; over the past decade-plus, the types of real estate services available to home sellers have become much more diverse. Understanding the different types of discount services is going to be key to having a satisfying sales experience.
On one end of the spectrum, you have barebones flat fee MLS companies that, for fees as low as $99, will list your home on the local MLS— and that’s it. They don’t help with staging or marketing, and the seller is on their own through negotiation and closing. On the other end of the spectrum— and this is the type of discount broker we’re going to be focusing on— you have top agents who offer a conventional full service sales process, but only charge a flat fee instead of a percentage-based commission.
How do these full service discount brokers get away with it? Well, these top agents generally make up in volume what they’re giving up in per-sale commission. Look at it this way: if they can close five flat fee sales in the same time it would take them to close one conventional sale, they’re coming out ahead. So are the sellers, who get to tap into the expertise and experience of an elite agent, while paying a fraction of the usual 6%,
Let’s look at some of the positives and negatives of selling with a discount broker.
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Discount Real Estate Broker Pros and Cons
Working with a discount real estate broker sounds like the best of both worlds; a full service sales experience, for less money. And, in most cases, it is. However, there are some potential downsides that you should keep in mind.
Let’s look at pros and cons, starting with the positives.
You’ll Save Money
This one’s a no-brainer. You get a discount with a discount broker. How much of one? That’ll depend on the specifics of your contract. Typically, these brokers work for a flat fee. Clever Real Estate, for example, offers a full service sales experience for a flat fee of $3,000, if your home sells for less than $350,000, and 1% if it sells for more than that.
Let’s break down some numbers to see just how much you stand to save with this kind of pricing model. The median U.S. home value, via Zillow, is just over $247,000. A typical 6% commission, if you sold that home, would come to $14,820.
That’s a healthy chunk of change.
But let’s say you worked with a discount broker. The way commission breaks down, you’ll still have to pay 3%, or $7,410, to the buyer’s agent— this would be true even if you sold without any agent at all. But instead of paying an equal 3%, or $7,410, to your listing agent, you’d pay only a flat fee of $3,000, for a total of $10,410 in commission.
That’s a substantial savings of $4,410, for the exact same services you’d receive if you paid full price. Sellers receive 5.82% more money for a home when using an agent, compared to selling it on their own, so this could end up as an overall benefit. That’s the way it should work, but we’ll explore below how this perfect scenario doesn’t always work out.
A Motivated Agent
As we discussed above, discount agents make up in volume what they forego in per-sale commission. And these aren’t random agents; most discount brokerages screen agents to make sure they’re referring customers to proven, elite agents in their area.
Put those two facts together, and you have a great agent who’s at maximum motivation to sell your home. You can bet they’ll be aggressive with their pricing, marketing, and negotiation, and that they’re going to earn every cent of the flat fee you’re paying them.
Most of the negatives here stem from a lack of information on the seller’s part, so make sure you do your research before you choose a company.
Getting Less Than You Thought
If you don’t know exactly what you’re getting into with a barebones flat fee MLS broker, you could end up unhappy with your experience.
Most of these flat fee MLS brokers charge around $400. That base rate gets your house inputted into the MLS, and they’ll sometimes throw in a lockbox / yard sign. This basic package does not include help with contract, negotiations, closing, or any other aspect of the deal.
If you’re an experienced home-selling pro, this is an option you may want to consider. If you’re a first time seller, it’s probably not going to be adequate for your needs. And if you expected anything like a full service experience, this is likely going to be a huge disappointment.
Many of these flat fee providers offer more expensive packages for higher fees or even a percentage-based payout; these packages often include help with marketing and closing. But with the standard package, you’re basically going to be selling your house yourself, with little to no support.
The best brokers in this category will make it a point to advertise that they forward all calls to the buyer, or answer all calls in a timely manner and clearly direct all buyers to you, the seller.
Don’t be afraid to ask a lot of questions about what you will and won’t get, before you sign a contract. The very minimum is a listing on the local MLS; do they let you upload photos, and how many? (Some companies only let you include a few.) Will they provide a lockbox for showings? If you need help with the negotiations or paperwork, can you upgrade your services?
And if you see a real bargain price (less than $300) make sure you apply extra diligence to make sure you’re getting what you’ll need to succeed. If a deal seems too good to be true, it probably is.
Getting Lost in the Shuffle
As we mentioned, many discount brokers rely on the fact that they’ll make up in volume what they’re giving up in a per-transaction commission. In other words, if they can close four flat fee sales in the time it would take them to close one 3% commission sale, they’re coming out ahead, financially.
Generally, this is a win for both the broker and the seller. Increasing volume is great— as long as the discount broker has a system in place to handle the volume effectively. The average realtor handles 12 transactions a year, according to statistics from NAR; that gives them a month, average, to shepherd a single transaction. And keep in mind that while the average is 12, most agents consider real estate a “side career,” and only take on a few clients a year.
Going from a few transactions a year, or one a month, to several a month, can be a tough adjustment for some agents. If your discount broker isn’t experienced handling high volume, that can translate to poor communication and availability, which can leave sellers feeling neglected.
The best way to avoid this is to check online reviews for any broker you’re considering, and to make sure they’re experienced with this type of business model. If you go the discount route, you want an agent who handles a lot of transactions a year, and is comfortable handling multiple simultaneous sales.
Full Service Brokers vs. Discount Brokers: Exploring Your Options
There are a few crucial differences between full-service brokers and discount brokers; let’s do a side-by-side comparison to highlight those differences, and how you can make those differences work for you.
Full Service Brokers
These are the conventional agents that charge 6% commission, and offer a full spectrum of services. They’ll help you stage your home, recommend upgrades to increase its value, connect you with photographers and professional staging services if necessary, help spread the word with marketing and advertising, conduct open houses, hammer out negotiations with the buyer’s agent, guide you through the labyrinthine closing process, and more.
Using the median U.S. home value of $247,000, that means the average 6% real estate commission is around $14,820. That’s a lot of money to pay, but you’re also getting a lot in return. If you need all those services— the staging, the marketing, the help with closing— the full service, full price broker can be a great option. The problems arise when you don’t need a lot from your agent, and you end up paying a lot for a little.
One thing all discount brokers have in common is that they charge less than a conventional full service broker. But some of them also offer a lot less.
We’re going to concentrate on the two main types of discount brokers here: the barebones flat fee MLS discount broker, and the full service discount broker.
The Barebones Discount Broker
The barebones flat fee MLS discount broker essentially offers the bare minimum, at a rock-bottom price— sometimes as low as $99.
One example is Houzeo, which for $99 offers a three-month listing on the MLS, six listing photos, and syndication onto major real estate sites like Zillow, Trulia, and Realtor.com. If sellers want to make changes to their listing, or to consult with an agent, they’ll have to pay more.
Another example is the flat fee MLS listing package at FSBO.com, which costs $399. Sellers who use this service receive an MLS listing and, per the website, possibly a yard sign. Once the agent lists the property on the MLS, they don’t offer any more services.
You can see the pattern here. For that flat fee, the seller gets their home listed on the local MLS. They don’t get help staging or marketing their home, or guidance through the negotiation and closing process. In some cases, they don’t even get a yard sign. Beyond the MLS listing, they’re on their own. This is known as selling For Sale By Owner (FSBO).
If they’re comfortable selling their home solo, this can be a great option. If that’s not something they’re comfortable with, but they still want to save money, they should probably consider the full service discount broker.
The Full Service Discount Broker
This type of broker offers a full service sales experience, for a lower commission than what is traditionally charged.
How can they offer full service for less money? As we discussed above, they make it up in volume. They close a lot of smaller commissions, and come out ahead of where they’d be if they closed only one larger commission.
There are also a few other ways they can make this model profitable; some discount brokers will slash their commission rates if you, the seller, agree to use them as your representation when you buy your next house. This lets the listing broker essentially eat the cost on the sale side and make up for it with a full buyer’s agent commission.
Others essentially work as referral services. Companies like Clever Real Estate supply pre-vetted, high quality leads to top local agents; the agents get quality leads, and the sellers are connected with elite, proven performers who know how to sell.
In this price model, the seller pays only a $3,000 flat fee instead of a 6% commission, and they get the same full service deluxe experience as if they were paying a full percentage-based commission. And it works for agents because they get a steady supply of good leads.
It’s truly a win-win.
Of course, there are some less reputable providers that may say they offer a full service experience, but actually don’t. When you’re shopping around for a full service discount broker, always ask up front what services they will offer. The critical components of any full-service agreement are:
- Getting the house on the MLS
- Helping set the price with a detailed comparative market analysis
- Being available to answer inquiries from potential buyers and buyer agents
- Helping to complete the deal once an agreement is reached
Those last two points are extremely important – even though some sellers overlook them.
So much in real estate depends on clear and quick communication–make sure your listing agent takes pride in being available and responsive. And once you’ve come to terms with a potential buyer, keep in mind that there are a ton of potential issues that can arise before closing that can derail your deal.
For example, if the home inspector flags problems in your property, the buyer’s lender might require things to be fixed and addressed before closing. Or maybe the bank’s appraiser thinks your home isn’t worth what you and the buyer agreed to.
When issues arise (and they almost always do) tensions start to run high. You’ll get nervous. Your buyer will get nervous. 50% of home sellers said they wouldn’t feel comfortable negotiating with buyers, and without the agent’s support, they’ll be forced into an uncomfortable position.
This is where your listing agent really earns that commission check. Navigating these issues takes experience. Given enough years, a broker will see just about every issue you can think of, so after you’ve asked them about their full suite of services, make sure you ask how long they’ve been in business. An experienced listing agent could be the difference between a blown up deal, and one that holds together.
The bottom line is this: when you’re looking at a discount broker, make sure they’re committed to communication, will provide the major pillars of full service, and have sufficient experience under their belt.
A Few Other Full Service Discount Brokers to Consider
Each discount broker has a slightly different model; here are two that’ll give you an idea of what kind of variations you can expect.
REX Real Estate
REX offers a full service sales experience for only 2%; furthermore, sellers who work with REX usually don’t pay the 3% buyer’s agent commission, meaning they’re truly selling for 2% commission.
What’s the catch? REX doesn’t put your home on the MLS, though they do list it on big sites like Zillow and Trulia, as well as their social media channels. That means you might miss out on a lot of prospective buyers, which could result in a lower sale price, or a longer time sitting on the market.
The other issue is REX doesn’t offer the 3% buyer’s agent commission, which is considered a “bounty” for buyer agents to bring their clients. Without that bounty, you might be looking at a longer time to sell.
This massive national brokerage will sell your home for a 1% listing fee. They offer exposure on their popular website, where they’ll also give you targeted marketing to find your ideal buyers. They get lots of eyeballs, but their reach is still limited; their homes typically take 90 days to sell.
Further complicating the picture is the fact that their 1% service isn’t available in many markets, and that in some cases, you have to pay a 6% commission up front, and then get a refund when you buy your new home through a Redfin agent.
The Best (and Worst) Discount Real Estate Brokers
When you look at the services different discount brokers offer, and the reviews that are out there, they shake out into pretty clear tiers of quality. Let’s go over our rankings, and discuss why each company is ranked where it is.
Clever Real Estate
With no bad reviews, and comprehensive services, Clever is the gold standard of discount brokers. This St. Louis-based startup connects sellers with top local agents who offer a full service sales experience for a flat fee of $3,000 if the home sells for less than $350,000.
Clever screens their agents and only refers to proven, experienced professionals, which means sellers get elite expertise for a big discount.
These companies offer quality services, but are less than transparent about their price model, which could be cause for concern.
Home Bay uses a sliding fee scale, so while you’ll almost certainly pay less than a standard 6% commission, it’s hard to say how much it’ll cost you to list your home with them. And while they do offer a full service agent to assist you, that agent will work with you remotely. This presents obvious challenges, especially when it comes to issues like showings and sitting down at closing.
Listing Spark offers an innovative system in which sellers pay per day to list their home. This can be a huge money saver if your home sells quickly. If it sits on the market for weeks or months, though, those fees can start to add up.
They also let sellers upgrade to services like professional listing photography, agent-hosted showings, and closing experts— but each of those costs an extra fee. As an a la carte service, Listing Spark offers a ton of flexibility, but those charges can add up quickly.
Unless you have no other choice, these providers should be avoided. If you do use them, be cautious, ask questions, and get everything in writing.
MLS My Home
This flat fee MLS service has a very poor one star rating on Yelp, and the reviews suggest they don’t communicate well, may not disclose all their fees upfront, and, in some cases, may not even provide their basic level of services. They also have an F rating from the Better Business Bureau.
This company has very mixed reviews at the Better Business Bureau, with some users alleging that they never received a listing, that their data was sold to a third party, and that Fizber has transparency issues.
How to Negotiate With Your Real Estate Agent
Everything in a home sale is negotiable— from the home price, to the closing date, to, yes, the real estate commission. You can often get a commission discount just by asking your agent.
Keep in mind, though, that working with a company like Clever Real Estate gets you partnered with a top agent who’s already working at a discount, who’ll bring elite negotiating skills to the table, making it even more likely that you can win further discounts or concessions from the other party.
Why would an agent give you a discount? Well, consider that an agent works on commission. That means they have no salary coming in when they’re not selling. If they need leads, selling your home for 2% is better than selling a nonexistent lead for the full 3%.
But even without market pressures like that, you can still persuade your agent to give you a discount. Here are some of the most effective strategies.
Look at the Market
A real estate commission isn’t just a flat sum. It represents a specific amount of work and time that the agent has put in. Think of it like this: let’s say an agent is selling two identically priced homes. If one sells in six weeks, and the other sells in twelve weeks, they essentially made twice as much money on the house that sold in six weeks, since they made the sale in half the time as the other.
So if you’re in an especially hot seller’s market, like Washington, D.C. or San Francisco, it’s worth a try to ask your agent if they’ll sell your home for less than the full commission. If they know your home is going to get multiple offers the week it hits the market, and sell above ask, they’ll likely be willing to compromise.
Know What You Need— and Don’t Need
For a full 6% commission, most agents will help you with staging, marketing and advertising, negotiation, and closing. But what if your home doesn’t need staging? What if your partner works in marketing and has a great plan already lined up? What if you’re a lawyer who’s comfortable handling the negotiation and closing yourself?
If you don’t need every service the agent is offering, that can be a great starting point to negotiate a lower commission. After all, less work should equal less money, right?
Get Quotes from Several Agents
The market runs on competition. Soliciting quotes from multiple agents will give you a sense of what the market rate is, and can uncover a bargain— especially if you let the agents know you’re getting quotes from their competitors.
There have never been more options for sellers than are out there in the marketplace right now. It’s up to you to know what you need, and select the best option for your situation.
Hardcore, knowledgeable sellers that can close a deal themselves might do well to opt for the barebones flat fee MLS option. For those that need a full service, but still want some savings, using a discount full service brokerage like Clever Real Estate is probably the best fit.
The bottom line? There’s no need to pay 6% commission for a top-shelf, full service sales experience. The system is changing— and it’s changing in favor of sellers like you.
Discount Real Estate Broker FAQs
How do I ask my real estate agent to reduce commission?
If you have interviewed multiple agents, you can leverage that when asking for a reduced commission. Competition can drive down the average commission. Companies like Clever Real Estate negotiate on your behalf and allow you to interview different agents.
Why are realtor fees so high?
Real estate agents have historically charged a lot because of the amount of work required to sell a home. However, with developments in technology, marketing and selling your home is a lot easier. That's why many discount brokerages have emerged.
Do you get poor service with a discount real estate broker?
Yes and no. Some agents will provide terrible service, and others have adapted to handling a large volume of leads. The same can be said about traditional agents. It's always worth negotiating for a lower commission, regardless of the agent.
How much can I save with a discount agent?
Typically home sellers save between 2% and 1% of their home's final sale price with a discount agent. That translates to $2000 to $4000 of savings on a $200,000 home.
Do buyers pay for their real estate agent?
Unfortunately for home sellers, no, buyers do not pay for their agent. This puts a lot of the costs of real estate transactions on the seller.