01Discount Real Estate Commissions
Take the traditional percentage of selling price model, reduce the commission percentage below the perceived prevailing local rates and you've instituted discount commissions. Straight discounts of a percentage point or more are quite common. Some of them come with reduced services, while others offer "full service" at a discount.
It's important to know that if you're discounting as an example down from a 6% listing commission to 5% or less, you should only take it out of the listing side if you don't want agents to pass up showing your listing because their commission drops.
Rebating a portion of the real estate commission to the seller, or more likely the buyer, is a viable marketing and business practice. Learn how it's employed to get more buyer business and possibly to reward buyers for doing part of the work of the real estate professional.
This isn't legal in all states, and states control the legality of real estate compensation models. In New Mexico where I practice, it is legal to rebate the client a portion of the commission. There is a gray area as to whether you must disclose that you're going to do this to the other party to the transaction.
I tried rebating, but really didn't get much interest from buyers. I believe I just didn't market it well. I think it would have worked better with cash challenged buyers in an urban starter home market than in my vacation home market.
03Fee For Service Real Estate
A growing number of real estate brokerages are un-bundling the traditional "full service" package of services and offering to perform some individual services at flat rate pricing. They also can develop mini-bundles of services into packages and offer those at flat pricing.
Offering different levels of marketing is one approach. A brokerage would offer a lower commission without print or media advertising due to the expense of magazine, TV and radio advertising. There aren't many services you can cut out for buyers however, as they don't see that they are paying the commission.
I tried this approach along with flat rate fees for some services. It really didn't work, as buyers still perceive that they're not paying for the services of an agent.
This hotly-debated practice is to list a property on the MLS for a seller at a low price, but provide few or no other services when it comes to showing the property, negotiating contracts or helping with transaction services. Learn why it's a hot button.
These services are popping up a lot. The fact that more than 80% of all homes sold are done so through an MLS listing, this seems to be a good approach for some sellers. However, whether you consider it ethical or not, some real estate agents refuse to show these homes, so this method isn't always effective.
As consumers demand alternatives to high commissions, you may see concepts like this take hold.
Do you perceive yourself as a knowledgeable professional with a great deal of value to bring to your real estate clients? Perhaps you'll want to look at a whole new way of presenting yourself and pricing your services. That's real estate consulting.
In this model you can charge for some services by the hour or a flat rate rather than a percentage of the selling price. Of course, your broker will have to agree.
Alternative Real Estate Business Models
The traditional full commission model is being challenged.
In our consumer-focused capitalist society, a business must continually adapt to meet the needs of their customers. Real estate is no exception. The traditional percentage of sale price commission model for a "full bundle" of services is being challenged by multiple other viable business strategies.
There are a few reasons for this, of course, a major one being the desire of consumers who want to save money when they sell a home. However, the pressure on commission-based models has increased with the Internet as well. People see homes listed and advertised on many websites with the same text and images. They are also bombarded with ads that tell them they can sell their own home without the use of a real estate brokerage.