Most people associate the word “discount” with a reduction in price. Webster’s actually defines it as, “a reduction made from the gross amount or value of something”. It’s no surprise that selling a home for a discounted rate seems so attractive. Unfortunately, many of the discount programs we see advertised are quite the opposite – they actually end up paying more than they would have. In this article we will examine 4 different ways of selling your home – the traditional model, the discount model, the instant buyer model and investors. Let me first say that every property owner has the absolute right to sell their home according to whatever model or by themselves if they choose. My goal is to educate sellers on exactly what types of programs are available and help them sift through the catchy advertisements.
The first model is the traditional brokerage model. This is what most sellers are use to. Under this model, the Realtor handles all aspects of marketing, presentation and selling of the home. Sellers are usually not required to front any money other than repairs on the property or items to help stage the property. I work for a traditional broker and our commission rate is 6%. This commission is split between buyer and seller brokerages. This can seem like a high price to sell a home, but real estate is much like other skilled professions – you aren’t paying them by the hour but by the skill set. Advising clients on negotiating, marketing, problem solving and carefully coordinating their move makes us earn our commissions. The only selling agents that don’t earn their commissions are the ones who either don’t sell the home or provide the level of customer service deserving of getting paid.
The next model is the discount model. Under this model, brokerages appear to offer the same level of service that traditional brokers do but for a discounted cost. The big question is what you are giving up for this discount. Are you giving up a level or marketing, photographers, advice, showing ability, skill set, or is the discount broker just able to offer the reduced commission due to reduced overhead or the hope to gain additional business through their model? If the only thing you are giving up is their overhead or contributing to their listing count, it’s easy to understand why this model would seem appealing. Make sure you know up front what they will or will not do. You could be missing out on some vital marketing and services. Make sure you carefully read their ads. Redfin, a respectable discount broker advertises, “sell your home for 1%”. While their listing commission is 1%, that does not include the buyers commission of approximately 3% which is customary for the seller to pay. Sure, you have the ability to decline to pay it or offered a reduced rate, but this could hamper your efforts to sell your home.
The next is the instant buyer method also known as the iBuyer. There are many different forms of these programs from Zillow, Homepad, Open Door and more. While it sounds attractive to be able to sell your home without having to endure long marketing periods, showing your home, making repairs, make sure you look at what this service will cost you. A majority of these programs charge a 7% or more “service fee” and will most often give you an offer well below the true market value of your home. Along with a loss of equity you are also paying more in fees than a traditional brokerage. So basically, you pay a lot more to get a lot less. If the value of not going through selling your home is worth losing an addition 3-20% of the value, I understand. A better option would be to have someone without a vested interest in buying your home (a Realtor) give you an estimate of what your home could sell for on the open market. Once you know what the number is, list your home for that amount before you accept a huge loss.
Our last topic is the investor model. Homes that qualify as “investor homes” are usually ones that are in a severe state of disrepair or have other reasons why a traditional buyer and or a traditional loan is not possible. While these investors offer below market value, they have to account for known or unknown rehab costs as well as selling/holding costs for the future. While they are sometimes seen as vultures, I see them as a well needed tool for a homeowner that might not have the money to make repairs on their home or need a quick way to get out of their homes.
Regardless of which model you use, make sure you do your homework to know exactly what your home is worth, exactly what you are paying and exactly what skill set does your Realtor or brokerage model brings to the table.