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2/27/13

Discount Real Estate Firms & Others



Q - Why is there such a large difference in fees among some real estate firms? How can the discount real estate firms charge so little and the conventional franchise firms charge so much?

A - The discount real estate firms use a different business model.  The listing brokerage pays very little, and sometimes nothing, to the selling brokerage.  The discount firm tends to rely on listing volume to be successful.  In a busy market that business model works better than in a slow market.  The large franchise brokerages, on the other hand, generally offer about half of the real estate fee to the selling brokerage.

When you look at the buying process, real estate agents have access to all properties listed on the multiple listing system.  They also see the fee that is offerred to the selling brokerage for each particular listing.  If the buyer's agent is selecting the properties to be viewed, he/she may choose not to select the properties that offer very little or nothing for the services.  If they select a property where there is a very small or even no payment to the selling brokerage, it is similar to someone going to their workplace and being told that this week you will not be paid.

If, on the other hand, the buyers select the properties that they want to see, and one of these low paying properties is among them, the agent cannot discriminate against such properties according to the Canadian Competition Act.  This Act is aimed at preventing anti-competitive practices in the market place.  So, if the buyers select one of these properties and choose to buy it, their agent  may not even cover his expenses unless he has a separate contract with the buyer agreeing to top up the fee to an agreed amount.  Or, with the buyer's permission, the agent might negotiate a better fee for himself from the seller via the seller's agent.

If, however, the buyers don't top up the fee and the buyer's agent cannot negotiate a reasonable fee, the buyer's agent then has worked without any compensation and may also be out of pocket for the expenses he has incurred while showing properties to his clients.

The other aspect of this business model deals with marketing/advertising. When you place your house on the market, it requires a great deal of exposure so that the public will know that it is for sale.  In addition, it also requires skillful marketing so that it can stand out and be differentiated from other houses. It is the listing real estate agent who pays for the advertising and not the real estate brokerage.

Realistically, how much marketing/advertising can be done by an agent from a discount firm with a minimal budget who is dealing in volume?  Is there the skill and the time to differentiate the house from others in the market place?  Does it include sizeable print ads?  What frequency? Colorful feature sheets? Web presence? Virtual Tours? Professional photos? Professional room measurements and square footage?  Feedback on showings?  Office Tours?  Follow-up on potential buyers?  Is a real estate agent, who has to deal in volume to be profitable, able to get you the best possible price for your home?  If the focus is on the volume of sales, is negotiating the best price for the seller sometimes compromised for the sake of making the sale?

Generally, real estate agents from the conventional real estate companies have more training, more in-house support, more marketing tools and more time to provide the tailored customer service often required.  In such a working environment, they also have the opportunity to finely tune their negotiating skills so that they can obtain the best possible price for their client. Their real estate fees reflect the standards necessary to provide the professional services and success expected by clients.

Be sure that you understand what you are getting for your money.  Ask the questions and make your decision.  As in most instances, you get what you pay for.

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