Discount Brokerages: Are They Worth It?

There's a new duck in town. It's called "Fee Duck". And strangely enough, it has something to do with real estate. I'm not sure where the name came from, but I suspect the word "duck" comes from the word "deduction", at least it sounds like it may if you say "deduction" out loud. 

This is how it works: Let's say you want to sell your house and would prefer to pay the lowest commission possible. You would go to Fee Duck, sign up, and sit back as real estate agents bid on who will obtain this listing. The listing does not go to the highest bidder. It's the opposite, a reverse bidding process where real estate salespersons are lowering their commission so that the seller could select the salesperson with the lowest bid, and therefore, save money on paying out commissions. 

Though Fee Duck may be new to Toronto, the idea of a discount brokerage is not new at all. Since I am a real estate salesperson myself, it may surprise some that I fully support discount brokerages. In many ways, discount brokerages make my job much easier at finding my buyer clients better deals. Why? Because discount brokerages often tend to attract salespersons who do less for their listing, market properties poorly, and who cannot compete with the pros. In turn, I find it easier to find better priced homes for my buyers. At least that's been my experience. In my day to day life as salesperson, the seller ends up losing more money in the long run by selling at a lower price and netting less of a profit on their sale, even with significantly reduced commission. 

When a real estate salesperson cuts his or her commission enough, then the focus turns more to obtaining the listing over marketing to obtain the best price. A seller's job should be to find the salesperson who markets the house the best. To be  honest, any one can sell your house or condo unit, but you need someone who will maximize his or her marketing and skills to get you the best price that would justify a higher commission.

Still, in the past year there is boom in companies trying to appeal to a lower commission while taking a piece of the commission for themselves. 

And I have a pretty good idea why this lower commission option has become so appealing. Some agents in the past have charged 5%, and did very little marketing and preparation on a property. It leaves the seller scratching their head wondering what the agent had done to earn a fat commission cheque.

Subsequently, sellers have become so focused on the commissions they pay out that they lose sight of what a real estate agents do, or at least should be doing. 

There are a lot of real estate agents in Toronto. More than half of them do two deals or less per year. They are hungry for a deal and lack experience. So, they will cut commissions. The thing is, these deep-cutting commission agents may lack the skills and the revenue to sell your home. You never know, you may find a discount brokerage that offers you a lower commission option and sells your home at a price with which you would be happy, or you may find a lousy agent who wants 5% and does not have the marketing plan to back it up. 

That's usually not the case though. A good marketing plan costs money. And more and more, the marketing is just not about putting a property on the MLS. You are competing with other homes that are for sale at the same time in your neighbourhood. So, you have to have the most appealing property in your area to attract the most buyers away from your competition. Because buyers are going to gravitate to the house that has the most appeal, and leave the one with the less-than-stellar photos and the agents who do not return phone calls, you want to have the most appealing property that was marketed and staged better than any other in the area. If there are 9 serious buyers in your neighbourhood and 3 houses for sale, it is very unlikely that  each house will receive a fair amount of 3 offers each. One house will take in most of the buyers, the next will get one or two, and one will likely receive no buyers.

On some level, it's basic capitalism. You invest more in commission, and you take a risk that it will lead to 5 to 10% sale price above market value, a better return than if you cut commission for a reduced or non-existent marketing plan that does not lead to an outcome as lucrative.

I think real estate is going to see a lot of new models of selling and buying properties in the years to come, and undergo some big and needed changes. On the downside, many outside companies like Fee Duck or Zoocasa will try to reduce commissions for the consumer and take a piece of the cut on commission as well. Some will last longer than others. Some will have more viable business models than others. I would be very interested, though, in seeing the data on sold properties from discount companies/brokerages compared to brokerages that sell at full or close to full commission. 

On the upside of this changing real estate landscape, there are some good things that I think will benefit the consumer. First, I think there will be more transparency for the consumer on knowing what the sold prices are in a given neighbourhood. So, I believe a consumer can soon look up prices and see comparable homes without a real estate salesperson. The real estate salesperson will no longer be the gatekeeper of information. He or she will be the person who will maximize the selling price of your home by knowing how to price, stage, and market your home for the top price. I think many people don't think highly of agents because they think agents make too much money on commission and have access to all the info. I say give the info to everyone, and make the agent work hard to sell your house and earn their commission. 

What's the Most Important Part of a Real Estate Listing?

I know you're out there. You busy folks who spend your spare moments cruising the MLS and realtor.ca to see what's new and what's coming on the market in your favourite neighbourhood. You may not even be buying a house or condo. Maybe you're just curious what price your neighbours are listing their home.  But now you have become hooked on looking at properties at lunch, on your break, during dinner.  Maybe you're a binge MLSer who plans to look at a listing or two after dinner, and by midnight you're still online. Well, I'm not here to help you with your problem, but I have come across some info that may put your search into perspective. And if you are planning to sell your home, it may give you a sense what's important and not so important to marketing your home in a listing. 

According to a University of Norfolk study lengthily entitled "Toward an Understanding of Real Estate Home Buyer Internet Search Behaviour: An Application of Ocular Tracking Technology", those who look at real estate on the internet tend to favour some parts of the listing over other parts.  In fact, Professor Seiler and his researchers have tracked subjects who look at online listings, and found that first impressions make a big difference, like dating or a job interview. This study may not be the most definitely thing I have ever read, and I'm not sure I agree with it entirely, but there are some interesting findings.

The study finds that photos do make a huge difference to your listing. But what photo does the average viewer of real estate listings gravitate to first? Is it the stunning open concept living/dining areas?  The huge bedroom with a walk-in closet? Nope, they go to the exterior shot of the property, whether it's the exterior of a condo building or a house. In fact, 95% of viewers, according to this study, went to the exterior of the home first and dwelled on it for 20 seconds. So, the lesson here, if you are selling you house or condo, get an excellent shot of the exterior, because that is what's going to matter most. 

Following the exterior, kitchens are the second most viewed photo, followed by the living room and the master bedroom. The backyard receives the fewest views. 

As for the remarks online, people tend to prefer short descriptions. It appears that real estate online viewers grow bored when you rattle off name brands and appliances. They respond more to lifestyle and neighbourhood information. 

All in all, the study indicates that pretty pictures are looked at first, followed by the description of the property, location and price, and lastly were the remarks added by the real estate agent. 

But what does this mean to you? Well, maybe nothing at all. But if you are selling your house, you may want to put a bit more attention into the photos. Personally, I'm not convinced that a condo exterior will have as much of an impact as a house exterior. The condo's appeal really does rely on what lies in the interior.

I know when I'm looking at properties for my buyers, if I see a listing that shows the exterior of the building and all the amenities, and no photos inside, I feel that the seller or the salesperson in hiding some thing. Same goes for houses that show the exterior from 3 or 4 different angles accompanied by a photo of the yard.  With no interior shots, a viewer's mind will start to wander...  Why did they not include any indoor pics? What is going on inside? Decades of neglect, horders, devil worshippers, a portal to a magical kingdom?  Your imagination can go wild. Even if it's bad, I say put am inside pic in the listing. 

And let this study be a wake up call to those sellers and/or agents who take their own unprofessional photos with a lousy camera or their phone. As someone who knows a thing or two about lighting, I say it is the most important thing, next to a good camera. If you pick a discount agent, you may get photos that just don't stack up against the other listings.

And since so many people go online first to start their property purchase, it's worth spending some time staging and taking the right photos to draw in those MLSers out there. That's not from any study, but I think it's a pretty good opinion based on my experience.