The Discounters and Their Clients
On the other hand, if you hire a low-price discount listing broker or a buyer's broker who pays you part of their commission, there will be things that these brokers will not do for you. And that is okay. But you cannot then expect the broker on the other side to do them for you. So plan on taking a greater role in the entire process than you might otherwise.
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Now as I mentioned at the end of the previous chapter, the real estate business has indeed moved in the direction of more diverse pricing and differing value models. Today we see limited-service models, entry-only models, and various discounted fees. Still to come, I hope, are fee-for-service models and hourly-billing models. And no matter what you think of any of these, they are here to stay. And we’ll see more of them.
The discount models that we see the most today are flat-fee listings on the sell side and commission rebates on the buy side. The flat-fee brokers charge a set fee for a particular set of services. They typically have various packages for, say $500 and $1,000 and sometimes even more. But the whole point here is that they do not do everything. In particular, they most often do not receive and negotiate offers. Instead buyers or their brokers send these directly to the sellers.
On the buy side, the way it works is the broker is paid a commission (by the seller) and then credits back some part of that amount to the buyer. Typically as a credit at closing, but it can be a check directly to the buyer afterwards.
The particulars of these discount models are quite various and beyond the scope of this book. But needless to say, I’m all for them and want to see more of them.7
But could we return to our Nordstrom/Walmart comparison? Nordstrom is famous for its customer service. They offer personal shoppers, no-question returns, and would never dream of shooing a customer out at closing time. Walmart’s customer service offerings are a bit less; but of course they offer large carts and never close. But here’s the point: No Walmart customer expects Nordstrom service. Oh sure, they may get it occasionally, but no one expects it.
If you are a buyer or seller and you hire a discount firm, you simply must understand that you are shopping at Walmart. You cannot then rely on the other side’s broker to make up the difference. So if you are a seller, don’t expect the buyer’s broker to teach you how to interpret the offer or advise you on the due diligence process. And even if she does, be careful, because at least in theory, she’s working in the best interest of the buyer.
If you are a buyer with a discount (commission rebate) broker, you cannot expect the seller’s broker to show you the house, come to your inspections, or pickup your checks. And they will almost certainly neglect to inform you of some much needed buyer-protection addendum.
Now, just like at Walmart, the brokers might go above and beyond for you. For instance, they might see you as a possible future client and want you to appreciate them. But you cannot expect it and you should always remember for whom they work.
Now as we discussed in the previous chapter, value is subjective. Some people will choose Walmart’s value proposition and other people will choose Nordstrom’s. But unlike value, competence and integrity are objective standards. While they may sometimes be difficult to evaluate, and sometimes even hidden, these attributes are not subject to personal preference. We all want competence and integrity.
So just because a retailer or a real estate broker offer a certain value proposition, that does not mean they are competent and honest at providing it. Kmart offered a very similar value proposition to Walmart; but by the end, they were not very competent at delivering it. Wells Fargo offers a very similar value proposition to Chase, but in the last few years, it has come to light that Wells Fargo operates with questionable integrity.
I have dealt with numerous incompetent and less-than-honest full-service brokers. I have also dealt with extremely competent, high integrity discounters. The reverse is also true.
So pick your value proposition and then look for competence and integrity.
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7. For a brief but interesting discussion of the benefits of fee-for-service and hourly billing models, and how they might work, see: Justin Wolfers, How to Get a Better Deal From a Real Estate Agent. The New York Times, 24 October 2019. https://www.nytimes.com/2019/10/24/business/real-estate-fee-for-service.html