Home Sellers: Think Twice Before Using a Discount Brokerage
While so-called discount brokerages — those that reduce their real estate professionals’ commissions to drive market share — claim to save home sellers money, they can actually cause their clients to leave money on the table.
First, it’s important to understand how the discount-brokerage business model works. Rather than working solely on commissions, as Pacific Union and other real estate brokerages do, real estate professionals affiliated with discount brokerages are typically paid a salary, then a bonus based on customer satisfaction. The brokerage then discounts the home seller a portion of the listing side — 2 percent to 3 percent of the final price — with the seller typically paying 1 percent. On the surface, the discount seems attractive to a seller.
One question that the discount business model raises: Are real estate professionals truly motivated to negotiate the highest price for a seller when they are already collecting an annual salary? Under the industry-standard business model, it is very much in the best interest of the real estate professional to properly prepare, price, and market the property to net the highest possible price for their seller clients.
Pacific Union Chief Economist Selma Hepp compared Pacific Union’s Bay Area list-side transactions from Jan. 1, 2018 through May 29, 2018 with those listings brokered by Redfin during the same period. On a year-to-date basis, Pacific Union has closed 913 Bay Area homes for a total sales volume of $1.41 billion, while Redfin has sold 227 homes for a total of $222.7 million.
From April 2015 to March 2018 in eight Bay Area counties (excluding Solano), Pacific Union sellers of homes priced less than $1 million received an average of 108.15 percent of list price, while Redfin sellers received an average of 106.41 percent of list price. In Alameda County, the difference in premiums is even more pronounced, with Pacific Union sellers receiving an average of 114.1 percent of list price compared with 105.9 percent of those represented by Redfin. Consider too that during that three-year period, Pacific Union real estate professionals netted their clients an average of $622 per square foot versus $522 of sellers represented by Redfin.
Recently a Pacific Union real estate professional secured a listing in Marin County after competing with professionals from Redfin and other Bay Area brokerages. After properly preparing the home for sale and marketing it with Pacific Union’s best-in-class technology tools, our professional secured a $95,000 premium for the seller. The 1.5 percent commission discount of $28,050 that the seller would have received using a discount brokerage was more than covered by the increased sales price that resulted from our real estate professional’s marketing and negotiation efforts.
There has possibly never been a better time to be a home seller in the Bay Area, with the median single-family home price climbing to more than $1 million in April, according to the latest data from the California Association of Realtors. In this environment, it is in any seller’s best interest to hire a real estate professional and brokerage with hyperlocal knowledge of market conditions, top-flight negotiation skills, and leading-edge marketing tools to achieve the maximum price.
Mark A. McLaughlin is CEO of Pacific Union.