Discounting: Nothing New?

Discount Brokers Argue That at One Time or Another Almost Every Traditional Broker Does It

September 1, 1996

Today's REALTOR® invited five brokers and managers--representing three discount and two traditional commission companies--to discuss ways that commissions and fee structures are evolving in the marketplace. In the August issue, they discussed what conflicts the changes are creating for both traditional and discount brokers. In this final segment, they talk about differences between traditional and discount brokers.

Look Who's Talking...

  • Linda Haese, GRI,broker, Shield Realty, Fairfax, Va. Haese offers flat fee, hourly fee, and discount commission brokerage. She says about 75 percent of her work is flat fee. The office has two salespeople.
  • Pat Lawless, vice president, Long & Foster Real Estate Inc., Centreville, Va., a traditional, full-service realty company. The office has 50 salespeople.
  • Rick Malsbury, GRI, principal broker, Jack Lawlor Realty Co., Centreville, Va. He describes the company as a full-service discount commission brokerage. The company has 10 salespeople.
  • Milton Shockley, CRS®, broker, Century 21--Shockley Youngblood Inc., Greenville, S.C., a traditional, full-service realty company. The office has 14 salespeople.
  • Roger Steiner, president and chief executive officer, Help-U-Sell Real Estate, Salt Lake City. Help-U-Sell is a real estate franchise that offers three set fees based on who shows the house to the buyer. The franchise has 245 offices in the United States and Canada.

One of you traditional brokers mentioned that you have a fee-for-service schedule. How often do people look for that?

Lawless: When sellers come in to us with special needs--such as being upside-down in their equity--we can provide services for them based on their ability to pay. That's only good business.

Shockley: We do the same thing. If a seller has a problem, we say, ''We'll eliminate this and this, and we'll lower the commission by this much.'' But what I hear Rick Malsbury saying is that he charges a lower commission and still offers full service. I don't see how he can make that work.

Steiner: Your point raises the issue of how people in the real estate industry use their time. The real estate industry is probably one of the most inefficient of all industries.

In our system, our salespeople are willing to take a lower commission split because they know they're going to get more transactions. We've had people leave to go to some other franchise, but they've come back saying, ''I’ll never leave again.''

At Help-U-Sell, they were used to doing two or three transactions a month, but at those other franchises, they were doing only one transaction every six months. They'd rather have a regular income--a smaller commission on a high volume of transactions--than a large commission on a small number of transactions.

We aim for efficiency. We don't want a room filled with 20 to 30 salespeople. We prefer a team of five to seven qualified people. They can do the same amount of business as the larger group. They make more money, they're happier, and they stay longer. And the broker doesn’t have to pay the big commission splits.

Malsbury: Along the same line of thought, my salespeople average eight to 10 listings each at any one time, whereas at some of the traditional companies, the average is about two or three each.

I've got 10 salespeople and about 80 listings. The average per salesperson is higher than eight because two of my salespeople work only with buyers.

Are consumers growing more com-fortable with discount brokers?

Shockley: Consumers are a little nervous about dealing with a company that isn't a name brand, especially a company that's new and small. To many people, their house is their largest investment. They're nervous when they hear a company saying, ''I'm going to cut your fee, but I'm still going to give you the full service that the name brand company offers.''

What if something goes wrong? Most consumers would rather pay a little more to deal with a company that they know is secure--a company that they know is going to be there for a while.

Lawless: Consumers in my area are also a little wary about dealing with companies that aren't brand names. During the last several years, we've had some real estate companies go out of business.

Malsbury: Again, we're talking about a niche market.

A lot of people I talk to on the phone say, ''I feel more comfortable with a national brand or with somebody larger,'' and I say, that's fine, they do just as good a job as we do. At the same time, there are many who call and say, ''I need to save money,'' and that's where we come in to play.

Haese: Usually, when I get calls, they're not from people who want to deal with a large company. Sometimes they've already dealt with a big company, and they want to try something different. I don't need to convince them to work with me. I'm what they're looking for.

I don't see traditional brokers as competition. My competition is the other discount brokers who keep offering to do the service for less and less.

You don't see your main competition as traditional brokers?

Haese: No, it's the discount brokers with their low fees!

Steiner: The competition is also the traditional brokers, particularly the large companies that are discounting their fees within their own system.

Malsbury: You've got a lot of 100 percent commission salespeople out there now with different companies, and they negotiate their own deals. A lot of times they'll come down to our levels on commissions.

Lawless: It's called competition.

Malsbury: That's what it's all about, and at the same time we're willing to go to a higher commission, to the level of the traditional companies.

How often does that happen?

Malsbury: Not often, but every now and then I'll get some listings that are higher, traditional commission rates, and again, it's always negotiable. Sometimes you come across a property that's a little more difficult to market, and the seller says, ''I'll pay more if you can sell it.'' That gives us the option of either making more money ourselves or offering a higher commission split to the company bringing in the buyer.

We sell our own listings only about 10 percent of the time. That means 90 percent of the time other companies are selling our listings. So if I'm offering them a higher commission to come in, that makes it better for them.

Steiner: As a national franchise, we recognize we're a niche market, and we want to stay in that niche. We're not trying to be all things to all people. Depending on the locality, you can achieve a tremendous market share by working in that niche.

We've been in Corona, Calif., for 10 years now. Sixty percent of our business is from referrals. We get a tremendous amount of referrals. People call up and say, ''Can you come out and list my house.'' Often, they've used us before and been happy with us. They understand the service and how it works.

About two years ago, we took over an office across the street from us that went bankrupt. The office was part of a major real estate franchise system. We went across the parking lot and moved in. Everyone in town was amazed. How could we remain in business when that big company failed? The answer is that we serve a niche market.

Haese: We've had some well-known companies fail in the Washington, D.C., area. A big name doesn't mean a whole lot to people anymore.

Lawless: In our area the stability factor still means a lot.

Is discount brokerage dependent on market conditions to be successful?

Haese: I think part of its success is due to market conditions. And part of it is that people are hearing more about discount brokerage. The public is more accepting. As recently as a couple of years ago, a lot of people didn't even know that this sort of thing existed.

Steiner: Most people don't realize that real estate commissions are negotiable. And a lot of practitioners don't want them to understand that, either.

One of the things I think we're going to find is that any company, no matter what the name is, that does the right amount of marketing and self-promotion is going to get its market share. So that's the challenge to us at this point--to get the word out to the public: ''There are services available that are professional and basically the same as those offered by traditional companies, but by participating a little bit with the broker, the consumer can save a lot of money.''

Lawless: There's a perception out there that all you have to do to sell a listing is to put it in the MLS. That doesn't work in today's market.

We provide a valuable service to the public. Most people don't want to negotiate their own contract and to get involved in a confrontation with a buyer or seller. That's why real estate salespeople exist. They're there to negotiate the contract for you. That's one of the most valuable services that salespeople provide.

Malsbury: Regardless of what goes on with the economy, there'll always be a place for the traditional company, the discount company, the flat-fee company, because different folks have different strokes, and everybody needs different things.

There'll be some sellers out there who just need a lockbox and a sign. There'll be some people who have to have somebody hold their hand through every step of a transaction. We'll always have a need for everything out there. But the thing we all have to realize is that we're in the same business, that we're here to make it work. Our only purpose is to get a house sold or bought, and it doesn't matter what size your company is. The professionalism of each individual is what has to come through in the transaction, and that's why the industry today is emphasizing education and ethics.

Steiner: With our franchise, the owners usually hold their own open houses, and they're allowed as many as they want. They can hold one every day. We advertise them on weekends in the newspapers. By doing that, we give consumers a lot of traffic and exposure for their property and allow salespeople to put their time to better use than sitting for an open house. Even though the salespeople aren't at open houses, they still get buyer leads from them. If we weren't successful at selling houses, the public wouldn't use us--even if our fee was zero.

Lawless: Don't you find that having the owner run the open house interferes with the sales process? If a salesperson was there, the salesperson would be able to ask certain questions that might lead to a sale.

Steiner: No, we train the owners to show the home and to get the name, address, and phone number of prospective buyers. If the owners are asked questions concerning financing or pricing, we tell them to refer the potential buyers to the salesperson. The salesperson then follows up that night or the next day.

Haese: Many of my clients sell their home through their own open house and then hire me on an hourly basis to write up the contract and follow through.

Lawless: That's interesting, because I often find that our clients don't want to hold their own open house. That's the reason they hire us.

Haese: It's a different market. My clients want to do it.

It seems that discount and flat-fee companies are taking on some of the characteristics of traditional companies, and vice versa. Is that true?

Haese: We're very flexible. We'll do whatever our clients want. If they want full service, we'll do it happily. If they want partial service, we'll do it for a flat fee. If they want us to perform a specific service, such as presenting a contract, going to closing, or holding an open house, we'll do it for an hourly fee.

Lawless: We lump our service together, cost it out, and come up with a fee. What Linda Haese is doing is breaking down the service into parts and charging a separate fee for each component. In the long run, it'll probably end up being about the same. It all depends on the individual and what the consumer wants.

Walt Albro is a former senior editor for REALTOR® Magazine.

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