Is a discount real estate company a better deal?

By Joel Persinger
YourRealEstateDude.com

In the last couple of weeks I haven’t been able to go anywhere without a “news” story about discount real estate companies hitting me squarely in the face. It seems that after many years the world has discovered this “new” thing called a discount real estate broker. Even 60 Minutes got into the act with a story touting the virtues of using a discount Realtor. I found the 60 Minutes piece very interesting. In fact, by the time I got done watching the thing, I was convinced that real estate was an antiquated business and that any realtor other than an internet discounter ought to be run out of town on a rail. But that would mean I would be run out of town myself.

The truth is, there have been discount real estate companies of one sort or another for quite some time. The internet has simply provided a way for inventive folks to repackage an old idea: if you do a lot of the work and only have the professionals do the minimum needed, you get to pay less for the service. It’s a good idea and it works for many people, but trying to make an "apples to apples" comparison between a discount broker and a full service one is a little like comparing a fast food joint with a high dollar steak house.

So what exactly are the pros and cons of using one type of brokerage or the other? If you listen to the folks on 60 Minutes you might be convinced that the entire thing revolves around what real estate agents do. To some degree this is true and the simple difference between a full service shop and a discounter is that with the full service brokerage the agent does the work and with the discounter the client does a lot of it. But I submit that the true story is centered more around what real estate agents know or in some cases don’t.

We may not think about it much, but the main reason most of us choose a particular professional is to benefit from what he or she knows. We know that the doctor will treat what ails us and that the CPA will do our taxes, but in large part we go to the doctor to find out what ails us in the first place and to the CPA to get help in our effort to pay less to Uncle Sam. The same is true with a Realtor. We know that a Realtor will help us buy or sell a house, but it is the expertise and advise we take advantage of along the way that really counts.

While a doctor, lawyer or CPA must attend specialized school for long periods in order to join their chosen profession, a real estate agent has no such lofty barrier to overcome. The majority of a real estate agent’s knowledge is gained through continuing education and experience. The more experience an agent acquires, the larger the client base he or she builds and the more likely that agent is to work at a brokerage where more autonomy and higher pay are available. Almost without exception this means a full service brokerage. By contrast, the newer the agent, the less experience acquired and the greater the need for the brokerage to provide sales leads and hand holding. Discount brokers pay their agents less per home sold than does a full service brokerage. In order to attract agents, discounters promise to provide the agents with lots of sales leads and hand holding. Consequently, they tend to attract new and inexperienced Realtors. Once these agents have gained some experience and built a following, they generally leave and work for a full service shop where they can make more money. Thus, the discount broker is constantly plagued with turnover, losing the experienced agents and hiring the new and inexperienced ones.

So, which is better for you; to save some money, do a lot of the work yourself and have an inexperienced agent working for you, or spend some money, let the agent do the work and have an experienced and knowledgeable Realtor in your corner?