John Kelly
(651) 238-5649

Why Use a Discount Broker?


Posted on Wednesday, June 25th, 2008

Saving money by using a full service discount broker has always been a good idea. But it has become even more important in today's market.

It's no secret that many homes aren't selling. No matter which media outlet you use to get your news, you will hear about foreclosures, falling prices, and people who just can't find buyers for their homes. These stories are true; they just aren't the whole truth. With all of the stories about gloom and doom, it's easy to lose sight of the fact that homes that are priced appropriately are still selling. In just the first week of June, the Twin Cities Minnesota MLS shows that over 500 single family homes were sold. What these homes had in common was that they were priced to sell. Many of them also were professionally staged, which is the second most important thing a seller can do. If you have a moment, check out my post about home staging.  But as important as staging is, it is of secondary importance compared to pricing your home so that it is a better value than any of the homes you are competing against.

Before listing your home, you need to have a competent agent prepare a comparative market analysis. This analysis, also called a CMA, will show what similar homes have been selling for. It should also show what similar homes are listed for right now, as these are the homes you will be competing against. The mistake that many sellers, and also too many Realtors are making is as follows: They are unable to understand that it is not 2002 anymore, and that market conditions have changed a little bit!!

In 2002, a REALTOR would prepare a market analysis, and then try to get the sellers to price their home so that it was "in line" with similar homes that were for sale. Because there were more buyers than sellers, this method was generally successful. Today however, agents and sellers need to look at the CMA in a different way. We don't prepare the CMA any differently than we used to. We search for comparable homes that are currently for sale, and then we use the search results to begin a discussion of how we can best compete with them. The difference is that sellers need to understand that a large percentage of the homes that are currently for sale are not actually going to sell. This means that even though we prepare the CMA the same way we always have, we need to use it in a new way.

Being "in line" with a bunch of properties that aren't going to sell is no way to be successful. Your home needs to be priced so that it is clearly a better value than any of the homes it is competing against. This is a simple idea to understand, but it is very difficult to apply. Psychologists have tons of research showing that people are most comfortable placing themselves in the middle of a pack. Sellers are no different; they will look at a CMA and be most comfortable pricing their home the same way everybody else does. It is surprising how many honest, hard working agents fail to show their sellers that they are essentially copying somebody else's failure. I have nothing against copying, I just prefer to copy ideas that have been successful!!

If you look at homes that are actually selling in this market, you will see that they are consistently the ones that are offering a slightly better value than the competition. By this I mean they are priced about 2% lower than a home with identical features. The best agents point this out to their sellers up front. But even the best Minnesota brokers are having a hard time getting sellers to price their home "out of line" with the competition. It doesn't help that these agents are typically charging 6% or even 7% of the sale price. Many Minnesota brokers are giving their sellers the same advice I am giving, but then they charge so much for their services that their sellers find it impossible to take the advice.

My answer is to discount the commission. At IBR Realty we have been doing this since 1987. That is one reason we are the largest Minnesota discount broker. Historically I was able to save my sellers about 2% compared to what other agents were charging. It felt good seeing my sellers keep several thousand dollars that they would have otherwise paid to a more expensive broker. But I knew that another broker would have probably been able to sell the home anyway, and often the sellers were getting so much that they weren't all that concerned about saving an additional 2%. My ability to charge less was an important component of my marketing plan, and it did save my sellers some money, but it wasn't central to my sellers being able to sell their home at all.

In today's market, my high quality discount services are more important than they have ever been. The approximately 2% that I can save sellers is often the difference between selling their home and not selling it. Just last week I sold a condo in the Highland Park area of Saint Paul that was identical to several other units for sale in the same building. The only difference is my sellers were able to be priced lower than their competitors without it hurting their bottom line. My seller and her fiancÚ will be meeting with me soon to begin looking for their dream home, while the other sellers she was competing against are still where they were.

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