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 For most of us, our home is our biggest single investment.
Yet when it comes to buying and selling homes, many homeowners are
reluctant to hire the expertise of a real estate professional. The reasons
given for this usually fall into one or more of the following categories:
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"I can't afford to pay a real estate broker 5% of
my selling price, I need the money myself."
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"Hiring a real estate broker and paying 6% is a
waste of money when I can advertise and sell my home myself."
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"My last experience of using a real estate broker
was really bad; I never want to do that again."
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"My home will sell really quickly, what's the
point in hiring a broker."
 Many of
these homeowners will choose to advertise their home themselves and try
and sell it without the aid of a real estate broker. If the homeowner is
among the 20% of for-sale-by-owners (aka FSBO's) that actually
manage to sell their own home without a Realtor*, they must navigate their
own way through the complexities of taking an offer-to-purchase through to
closing, without the whole deal falling apart. [Note: there are now
options available to homeowners looking to sell on their own and still get
selected assistance with contracts and closing, see By Owner Services].
For those homeowners that fail to sell their own home,
many will turn to discount brokers in the hope of getting help selling
their home without having to pay a full commission on the sale.
Many of us have seen the ad's for the discount broker;
they're the ones that say they'll sell your home for 2%, or they'll list
your home for just $1000 or something similar to these claims. What these
brokers suggest is that you can get all the same services from them as you
can from a traditional broker, but for a lower fee. What they don't tell
you is that in order to offer their brokerage services for a discount,
they have to cut back on the services they offer. Often the first services
to be eliminated are those that are least apparent to the homeowner: the
fiduciary services (fiduciary services are those where the expertise and
experience of the Realtor are needed to properly counsel a client in the
sale of a home). Once you eliminate (or greatly reduce) these fiduciary
services, you are left with a number of functionary services that can be
easily done by even the most inexperienced agent (such as listing in MLS,
putting up a yard sign, providing a computer generated market analysis).
Understanding how and what services are being cut has an
enormous impact on how consumers perceive the value of these discount
brokerages (unfortunately, many homeowners have little experience or
understanding of what a full-service Realtor does, which is why it has
been so easy for discount brokers to enter the market). These discount
brokers typically rely upon high volumes to make up for their lack of
income from fees. They also typically do little more than list the house
in the local multiple listing service and put a sign up on the lawn to
entice new sellers to call them. Indeed, owner-sellers often do a better
job at marketing a home than a discount broker.
Another problem with discount brokers (and many
traditional brokers) is that their fee is linked to the home selling; they
get paid the same fee whether the home sells in one week or one year, and
they get paid nothing if it doesn't sell. Now not paying if the home
doesn't sell sounds intuitively correct to most consumers, but let's think
about this for a minute. The discount broker gets paid a percentage of the
sale, let's say 2%, which on a home worth $300,000 is $6,000, only when
and if the home sells. If they take 6 months to sell the home, they get
paid $6,000; however if they take one week to sell it for $250,000, they
get paid $5,000 almost immediately. Remember, a discount broker is working
on high volume to make up for low commissions, so they are looking to turn
home sales over very fast and without having to spend money on
advertising. The fastest way to do this is to under price the home so that
it sell quickly. What's more, they know that when the home is under
priced, they stand a much better chance of being able to sell it without
having to pay another broker a split of the commission. The most likely
result is that either the home won't sell if it is priced correctly, or it
will be sold under market value to net a quick sale for the discount
broker.
By contrast, Fee-For-Service brokerage is a response to
the cry heard time and again from homeowners: "why can't I just get a
professional to help me with specific aspects of selling my home without
having to pay an enormous percentage of my home's value, regardless of how
much work they actually do for me?" Many homeowners, especially with
higher priced homes, are reluctant to pay a fixed percentage of the
selling price for their home when they don't perceive they have a need for
a "full-service listing".
With Fee-For-Service, services are not discounted; instead
they are repackaged into bundles that may be more suited to certain
consumers, allowing for combinations of functionary and fiduciary services
to be selected according to individual needs. These service bundles are
offered to clients for a flat-fee regardless of the value of the home
being sold.
A typical Fee-For-Service broker, and Nigel And Company is
no exception, offers bundled fiduciary services that can be purchased by
the homeowner on a pay-as-you-go basis. The benefit of this arrangement is
that you can be sure the advice you are getting with regard to pricing is
not governed by any need to sell in a hurry (unless that is your goal),
and that you get to pick and choose the services you want and need, and
you don't end up paying for services that are neither needed nor
delivered.
 Fee-For-Service is not necessarily any cheaper than
traditional commission-based brokerage; for example, if you were to take
all of the services that go into a full-service listing and purchase them
individually on a fee-for-service basis, you could end up paying more than
you would have with a traditional percentage fee. (Think about buying
spare parts for a car, individually they are much cheaper than buying the
car, but if you were to try and build a car by buying all the parts
individually, it would cost you far more than simply buying the car
already assembled). What fee-for-service allows clients to do is to pick
and choose the services they need based upon each client's own unique
needs and circumstances, and in so doing, offers the potential to save
money where the "full service listing" is not required.
To learn more about Nigel & Company's Fee For Service Packages, click
here. |
