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Abc, Home Seller in Austin, TX

What's the pros and cons of 1 percent realtors?

Asked by Abc, Austin, TX Fri Aug 10, 2007

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Wow ... a big response on this topic. I am asked this question often and here is my typical response: discount brokers have been around for a long time, this is not a new trend, but I believe you get what you pay for. The name 1% is a bit of a misnomer as most sellers will offer the 3% to a buyers agent then whatever they negotiate for their listing services. I have been told that most sellers who use discount brokerssign up for more than the bare bones 1% list expense. Many discount brokers have a menu-based fee structure so that you would pay x amount to go into the MLS, x for photos, x for a virtual tour, x for flyers, x for open houses etc. So let’s say, hypothetically, that the average seller who signs up with 1% realty actually signs up for 2% of listing services, then they would be signing up for a 5% deal. Perhaps they should be called 4 or 5% realty? I believe you get what you pay for.

It is a very competitive market out there and I believe sellers, at least in the tech-savvy Austin market, need to be as competitive as possible to increase their chances of selling quickly and attracting high offers. A 2005 National Association of Realtors study said that 77% of buyers use the internet to search for a home. In my opinion it is wise for sellers to use an agent who utilizes significant internet tools to market his/her properties. Again, you get what you pay for.
Pros: it’s cheap
Cons: it’s cheap
3 votes Thank Flag Link Sat Aug 11, 2007
You can get your home LISTED on the MLS for 1% - but that's about it. That probably isn't a good deal though becuase as Ruth pointed out, you can easily get your home listed for a flat fee - which is probably way less than 1% of your sales price.

The trouble with 1% is that when you talk about a commission, your agent isn't just walking away with the entire check. I think that a lot of people who think that 1-3% should be "sufficient" to sell a home don't recognize what is involved and who gets paid what and how much work is involved for each task.

The commission must be split between the listing side (the agent you hire) and the selling side (the agent who brings a buyer.) So, for argument sake, the listing side in your scenario gets 0.5% and the selling side gets the same. That money is then split between the agent and the brokerage. Since its been a slow year, even good agents will be on a 50:50 split with their office - although this varries according to location, office and agent. That leaves listing and selling agent with as little as .25% in thier pockets before taxes and expenses. If your home is worth $500k that leaves each agent with $1250.00.

Do you seriously think that your listing agent can do much of anything in the form of open houses, promotion and advertising for that kind of money? Even on a small co-op I can count on paying about $500 in advertising alone. Flyers and postcards etc. all add up as well. By the time I am done, and when you add in taxes I would be lucky to take home about $500 for what might be six months of work. I can not make a living that way, nor can anyone else.

On the selling side, it's just as difficult. Agents will not be rushing in to show your property. In most parts of the country (not all) we are in a buyers market. Buyers have a TON of choices. When I work with a buyer these days, I can end up showing them upwards of 30-40 properties in a 50 mile range (and our market isn't bad at all.) Just to get to an accepted offer and contract can take months of gasoline, time and shoe leather. The commission on this side is even more unattractive because sales is far more time consuming than listing. Since there are so many homes to show, most agents would tuck your home to the bottom of any list they had and would only show it if the buyer would agree to cover the balence of their commission. Most buyers won't - or would insist that agent expenses be negotiated into the terms of the contract.

If you want to list your home on the MLS but don't want to pay the full fee, you should go with a flat fee service and offer the coop (selling side) a full commission. You won't gain the benefit of the MLS listing if you don't do this. If you go that way , you will have to do all of your own advertising, promotion, showings and open houses. Not to mention negotiations, inspections, preapprovals, contracts etc. You may or may not save any money. Remember that buyers are very savvy these days and they will know that you are selling at a reduced commission and will try to cash in on some of your savings. In most markets, buyers are in the driver's seat and will reduce their offer because you are "saving money" by doing most of it yourself.

Good luck!

*Please note that all discussions of commissions and splits are hypothetical and are for educational purposes only.
3 votes Thank Flag Link Sat Aug 11, 2007
I am in favor of discount brokers because "If you want something done right, you have to do it yourself". But a 1% Realtor does NOT sound like a good idea. Most of the LISTING discount brokers charge a FLAT fee upfront, not a percentage on the back end. You as the seller then have the option (sometimes) of selling FSBO or co-broking with a Buyer's agent. In that case, you want to offer MORE than the traditional co-broke amount to encourage the Buyer's agent to work with the discount company. In my case, the norm is 5% with the Buyer's agent getting 2.5%. So the co-broke I'm offering through the MLS discount service is 3% to the Buyer's agent.

As mentioned by Carrie, "You get what you pay for" is one of my favorite sayings by Realtors because of the irony. You could sign a listing agreement with a Realtor for 10% but if they don't sell it, you have PAID them ZERO, thus getting what you paid for. The whole "out of date" and "conflict of interest" commission structure in the Real Estate industry is flawed for the seller, buyer and agents.

On another note, originally many of the discount brokers were geared for the novice to save money. But many quickly realized that their true target was the experienced buyers and sellers. The novices NEED the assistance of a FULL SERVICE agent. Selling a home costs money and takes expertise, there is NO WAY to get around that.

ABC, read through old posts such as "Buy Owner" (disaster), "full service", and "flat rate".
Here are some of the relevant threads:
http://www.trulia.com/voices/Home_Selling/I_listed_my_house_…
http://www.trulia.com/voices/Home_Selling/Thinking_of_switch…
http://www.trulia.com/voices/Home_Buying/Redfin_v_full_servi…

Good Luck,
Ruth
Web Reference: http://www.oak-park-il.com
3 votes Thank Flag Link Sat Aug 11, 2007
Ruthless, Other/Just Looking in 60558
MVP'08
Along with all the other answers, here is my experience: they don't answer their phone or respond to requests from agents or clients with agents. I've had more than one client tell me this. The 1% agents want to find a buyer who is unrepresented so that they can get both sides of the commission. As I see it, this is the only financially feasible option. Sure, they take a listing for 1%, but, if it sells, they get 4%. I've also been told by clients that at an open house, the 1% listing agent, after being told the buyer is working with an agent, says "you won't get this house unless you buy with me". I'm not making this up!
2 votes Thank Flag Link Sun Nov 11, 2007
I think you have gotten some great answers here but I needed to add one thing and that is If an agent can not negotiate their own commission, how do you expect them to negotiate the price of your house.

Diane
2 votes Thank Flag Link Sun Nov 11, 2007
Pros: You may save on commission,
Cons: You may not.

Pros: You may gain valuable experience in selling real estate on your own.
Cons: You may never want to go there again.

Pros: It can be a workable strategy in a seller's market.
Cons: It could be disastrous in a buyer's market.

(You seriously ask a very good question. I just can't resist simple answers--and wish you well regardless of your listing strategy!)
2 votes Thank Flag Link Sat Aug 11, 2007
Roberta Murp…, Real Estate Pro in San Diego, CA
MVP'08
Contact
My first immediate thought is if they are willing to discount their money so quickly, whether buyer presentation, listing presentation or both, how much more quickly will they discount yours! It is not to knock discount brokers, and in truth it is all negotiable, but there is some validity here to the old saying "You get what you pay for". Be sure to find out what you get for that 1%. Then ask an agent that charges a 3% fee, and get a detailed accounting of what you get for that! Compare your lists, you are the one that ultimately has to decide how much service you want, and what you are willing to pay for it. My guess is with the changing market, service is going to be a key element in getting property sold. Those agents that offer full service and deliver will be the most sought after agents, and will be worth every penny of their commission.
Web Reference: http://carriecrowell.com
2 votes Thank Flag Link Sat Aug 11, 2007
There is a lot of good information here. My input is that each real estate transaction you take part in is a negotiation from the moment it begins to the moment it funds. By law there is no set rate or percentage of commission that must be adhered to. That being said each REALTOR has determined that their time and services are worth a certain amount and data suggests many agents want around 3%.
There is much more to be said about this topic, but my underlying feeling is that you do not necessarily "get what you pay for" when it comes to hiring an agent. You must go through the interview process, follow up with other sellers the agent has worked with and then make your own decision.
1 vote Thank Flag Link Sat May 31, 2014
You get what you pay for!
1 vote Thank Flag Link Tue Nov 27, 2007
BTW- I know those 1% guys here in Austin and they haven't made the top 50 top selling realtor lists....
1 vote Thank Flag Link Mon Nov 12, 2007
I say list with the 1% guys and see what happens. They better do a bang up job for you becuase every month you are probably losing 1% while its on the market.

btw - i'm not one of those 1% guys. I just don't bother wasting my time talking about service etc bc most people's minds are already made up to save the money no matter what it costs them. To me, I think these people are cheap and it'll show when you have a buyer come into the property. Actual customer statements: 1% realty, oh the seller must owe to much money and i can't get a deal. 1% realty, oh, that seller must be cheap and doesn't want to wheel and deal. Come honey, let's go look at the more expense property, maybe if I use the same realtor, i might be able to get a better price.

Is it enough to say don't go, no but be real brother. You don't want to pay a fair price to market your home. That "cheapness" shows in something else around the property.
1 vote Thank Flag Link Mon Nov 12, 2007
Basically... they all suck. You get what yoyu pay for.
1 vote Thank Flag Link Sun Nov 11, 2007
Forget the agent bringing the buyer... how hard do you think the LISTING agent is going to work for 1%. I just got my coop advertising bill for the past month and if I were getting 1% I'd be rethinking my advertising strategy right now.
1 vote Thank Flag Link Sun Nov 11, 2007
There is such a huge inventory of homes out there that nowadays, the question you should ask is "how big of a commission should I give my agents so that the house will get a chance of getting shown and sold".

You need to think how how much it will cost you every month to have your house sit on the market. If it costs you $2,000 a month between the mortgage interest, the taxes and the maintenance and if it takes 6 months on average to sell a house in your market and price range, then you should consider using the $12,000 anticipated costs as an incentive to realtors to sell your house as fast as possible.

Keep in mind that you don't have to accept any offer that does not satisfy you. Unfortunately, 1 percent realtors won't bring you the traffic that you want.

Worry more about pricing your house so that it will sell than how much you will have to pay a realtor. Remember that you get what you pay for.
1 vote Thank Flag Link Sun Nov 11, 2007
If it sounds too good to be true it probably is... Hire a full time Realtor(r)...

Discount Brokers, Cash Back at Closing, If it doesn't sell in 90 days, I'll buy it..... and the list goes on, most are gimics to get someone in and under contract. You get what you pay for a nickle and dime at a time.

Most full time Professional Realtors(r) will help and work with you any way possible, as they are in it for the long term. In my opinion sucessful Real Estate business is based on referrals and repeat clients.

If an agent or company discounts their fee (paycheck) to get your business, how are they going to represent you in the getting the most for the property they are selling.
1 vote Thank Flag Link Sat Nov 10, 2007
"*Please note that all discussions of commissions and splits are hypothetical and are for educational purposes only" thumbs up for that disclaimer, Ruthmarie!

Speaking of educational, I am linking a draft article by Mark S. Nadel , an attorney/ policy advisor with the federal government in Washington, D.C. He has published articles on public policy issues in law journals at Harvard, Yale, and Stanford, and in the Wall Street Journal. He is a graduate of Amherst College (1978) and Harvard Law School (1981). The author seeks constructive criticism of this draft article, which is being submitted for publication in a law journal. Please send comments to msnadel@gmail.com

The linked 64 page article analyzes five elements of the traditional residential real estate broker rate
structure. The article suggests that consumers would benefit most from a fee-for-service approach.
1 vote Thank Flag Link Sat Aug 11, 2007
Jim Walker, Real Estate Pro in Carmichael, CA
MVP'08
Contact
Rephrased answer......
Unsure of what you are actually asking here...
Are you looking for seller representation only or seller and buyer representation?
TY to Pam....My intent here is to discuss representation, not specific commission rates.
1 vote Thank Flag Link Fri Aug 10, 2007
Deborah Madey, Real Estate Pro in Red Bank, NJ
MVP'08
Contact
The fee charged by US realtors is globally recognized as ludicrous and an obvious, protected cartel. Not many countries in the world would allow such a state of affairs. In the UK and Ireland, for example, agent fees are never more than 1.5% (I have bought and sold a couple of properties in the UK). In my experience, 2% is considered high in the global real estate industry. Like so much in US commerce (healthcare, education, etc..) we are criminally overcharged.

Additionally, when all the talk was about trying to get the property market moving, one of the first moves would have been to get rid of these exorbitant fees that make selling a financial hammer-blow. Of course, the idea never even came into the discussion.
0 votes Thank Flag Link Tue Feb 11, 2014
The pros are you get listed for a good price. The cons might be less input from the broker. I guess you have to try to find out.
0 votes Thank Flag Link Mon Jan 10, 2011
In reallity you get what you pay for.

If a person feels they have the expertice, time and abilities to sell their home on their own so bit. Some people are successful, others are not. It all depends on the local market.

If a person chooses a discount broker so be it, but make sure you read the fine print. Some have a great lead on and marketing, it's the details and what is not clear that add up quickly to what cost.

If a person chooses an agent so be it, but all agents are not Realtor(s).

If a person chooses a Realtor(r) they are hiring a professional who agrees to abide to a Code of Ethics and Professional Standards. Hopefully they do as they can be held accountable with penalties applied.

Unfortunately all the above noted are my opinion, subject the the market area and the person or agency being hired. Everyone wants to give advice and tell you how it's done.

Best advice:

Talk to a friend, ask for a referral and leave the headaches and details to the full-time Realtor(r) Professional you hire. Most importantly ask questions.

The worst question there is, is the one that doesn't get asked...

Good luck!
0 votes Thank Flag Link Mon Dec 3, 2007
Pro's:
1. You'll feel smart for the first 15 of the 765 days that your house sits on the market with no serious buyers.

Cons:
1. Brokers have the serious clients, and brokers are not going to bring their clients to your 1% listing.
2. If a broker's client finds your 1% listing on their own, the broker will trash talk your listing and make extra sure their client does not buy your property.
0 votes Thank Flag Link Mon Dec 3, 2007
For those who want to go the For Sale by owner (FSBO) route consider Austinhouse.net, it's cheaper than 1%.
Web Reference: http://www.austinhouse.net
0 votes Thank Flag Link Sun Dec 2, 2007
I think the 1% realtor is the worst of all possible choices. I you are experienced enough to do a FSBO in a Buyer's market and want a flat fee MLS listing for @ $400, then go there. But if you do not have this kind of expertise, then do a full sevice listing.
The biggest danger of a 1% listing is that you will expect certain things to be done and they will not get done. At least with a FSBO, you know you need to do it yourself.
Finally, you are overpaying. You will get little more than flat fee MLS service but are paying more.
IMHO.
0 votes Thank Flag Link Tue Nov 27, 2007
Hello Abc,

The only pro I feel about 1% realtors is that you are saving more money in your packet and believe me I do understand where the sellers come from with wanting to save as much money as possible.

The #1 con (and my only con)
My thought about 1 percent realtors is that I do not consider it fair to the sellers because lets just give a simple example: everyone in this world is motivated by money no matter what profession you are in, rather you are paid by commission or salary the more money you can get you are going to try to take it "who would not" When someone comes to your home offering 1% you have to stop and thing about what type of marketing is this person going to do for you, how much are they going to pay to market your home to get the most exposure so it does not sit on the market. I personally when I obtain a listing justing on marketing alone I spend $500.00 plus depending on what I am doing or the location I want the best for my sellers if they are allowing me to sell there home (which is very important to them).

I am not against 1% realtors but buying a house is the most expensive investment you will make in your life. Everyone in this world takes there healthy issues seriously and want the best treatment when they are sick when it comes to my home I would want the best representation and want to know that you are working for me and not just tring to get as many listings for the month as possible, not even caring about my needs.

The last thing that I would like to leave saying is no matter who the realtors is or what they are charging for the commission do not be negative about it, interview the realtors and make sure that they have your interest at best and you can connect with them.
0 votes Thank Flag Link Sun Nov 11, 2007
You should take into account your needs and abilities. If you know the market in your area well and are prepared to do some of the work on getting the property sold it might be a good option. I would go into it with the attitude that you are gaining access to the MLS and that is about it. In my opinion it is similar to acting as your own lawyer if you go to court! If you think you can handle the job and are willing to deal with the outcome then go for the gold! If you are willing to price your home to sell I think you are better off on looking for an agent that is willing to take a lower fee to market your home professionally. It might cost you an additional .75%-1% but it will be well worth it. I know I would not turn down a listing with an aggressive seller in this market.
0 votes Thank Flag Link Sun Nov 11, 2007
Very good question. you will save a little money up front. however, typically the companies that list for 1% are hard up for business, and usually dont provide all the nessisary services a seller looks for when selling their home. some things to look for would be, open houses, areas of advertising (besides the MLS), What kind of web placement do they have? don't just pick a company because the quote you the highest list price. Agents don't price the home, the market does. instead, look for someone who will provide a detailed CMA. As a seller you dont want to get involved with an overpriced home. it will make the whole selling process stressful. there are many other things to consider. if you would like to talk more about them please feel free to contact me. good luck to you!
0 votes Thank Flag Link Thu Oct 18, 2007
If a realtor reduces their rate by 1%, then that is a 17% reduction in their profit. I wonder how you would feel if they negotiated away 17% of the home sellers equity so easily...
0 votes Thank Flag Link Wed Aug 29, 2007
Roberta put it very well.. you might save a bit on the fee side but it could cost you more in other areas then what you save in the fee... it may work well for some sellers but usually you lose more then you gain..
Web Reference: http://kayethomas4homes.com
0 votes Thank Flag Link Sat Aug 11, 2007
Kaye Thomas, Real Estate Pro in 90266
MVP'08
Contact
Sounds like a discount broker. How experienced is the Realtor? Do they value themselves? Are they full service? Will they be able to effectively market your property? What skills do they have?

The pro's....you will pay them less and save on commission. You will do most of the work.
Will you get the maximum exposure and price?
0 votes Thank Flag Link Sat Aug 11, 2007
Pam Winterba…, Real Estate Pro in San Ramon, CA
MVP'08
Contact
If you were selling anything yourself, would you try to sell what brings you a .25% or a 1.5% commission?

What you have to realize is that, in every industry, people who work on commissions are naturally enclined to push what benefits them first even if it's not the best or smartest way to operate. But unfortunately it's a fact. It's called greed.

Another fact is that it's salespeople who sell products, not fancy advertising only.... You need to give incentives to those who will contribute the most to the sale of your product. That's what is called sales promotion. Forget the intermediaries and you are history!!! Sure, companies would love to pay as small a commission as possible but there is always someone else who will pay a higher one and salespeople will naturally switch allegiance in a blink.

Please note that the above comments are valid for all industries including the real estate industry.
0 votes Thank Flag Link Sat Aug 11, 2007
You save money, but you do most of the work.
Web Reference: http://www.dianeglander.com
0 votes Thank Flag Link Sat Aug 11, 2007
I don’t know how a realtor who charges that kind of fee will be able to cover their advertising and carrying costs. There also isn’t any compensation built into that for a co-broke (a buyers agent). You will surely be doing most of the work, and adding to your expenses. Maximum exposure and marketing is essential in this market in order to be one of the homes that actually sell. Interview a few full service brokers and do a comparison between the discount broker. Whatever your discount broker doesn’t offer that the other broker does, are tasks and expenses that you should be aware of, as these are things you will need to do yourself.

Melissa Mancini, Realtor, CBR, GRI
Web Reference: http://MelissaBMancini.com
0 votes Thank Flag Link Sat Aug 11, 2007
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