SHOULD WE USEA DISCOUNT AGENT?

Rarely. Well, preferably not.
But….
If forced to give a yes or no answer to this question, the answer would be NO.

And here’s why…

If the main way you choose an agent is on their commission rate, you are making one of the most common mistakes of home sellers.

If agents haven’t got the skill to negotiate a decent pay for themselves, do you think they’ll have the skill to negotiate the best price for you? Cheap agents often mean cheap selling prices. A sure sign of agents who are poor negotiators are those who can’t negotiate for themselves.

You need an agent who gets the highest price not who gets the lowest commission. Of course you may think you can get an agent to sell your house for high price and charge you a low commission. It seldom happens. Despite the claims of low-priced agents that they can still get you a high price.

EXAMPLE:
Here’s what can happen if you choose an agent purely on their rate of commission.

An elderly homeowner in Sydney wanted to sell her home of 40 years. She was moving to Tasmania. She considered two agents. The first was a discount agent called Upside Realty. They offered to charge her 1%. The other agent charged 3%. So she signed-up with Upside.
Like so many sellers, this lady used no other criteria to choose between these two agents other than commission rate. The only question she asked each agent was, “How much commission do you charge?” Her attitude was, “Don’t give me sales talk, just tell me how much commission you charge.”

Instead of focusing on the commission for the agent – particularly early in the sales process (especially on or before signing up with the agent) – sellers should focus on the selling price for themselves.

So, the question that should be asked of every agent is: “How much can you get for my home?”

Consider this: What’s more important to you? The amount that goes in your pocket or the amount in the agent’s pocket.

Surely you should choose the agent who puts the most in your pocket and then – once you see how they perform – you can negotiate how much the agent deserves in their pocket. Always focus on the upside for you – not the name of the agency of their slick, come-on promises.

THE DOWNSIDE OF DISCOUNT AGENTS.

A more appropriate name for Upside Realty would have been Downside Realty. This agent quickly sold the elderly lady’s home. She was delighted. She could now pack and be on her way. She was very happy with the price at $880,000. And the commission was so reasonable $8800. Just one per cent. The agent boasted that he had saved her $17,760 in comparison with the agent who charged three per cent. But, like so many naive, decent, and trusting homeowners, this lady had no idea that the biggest cost of selling a home is rarely commission. No, the biggest (and often unseen and unknown) cost of selling a home is the amount by which it is undersold.
As soon as he’d bought the home for $880,000 and the elderly lady had left for Tasmania, the buyer approached the other agent – the one who charged three per cent commission. This agent immediately re-sold the home (for which the buyer had just paid $880,000) for $1,440,000.

So yes, the lady may have saved $17,760 in commission. But the common yet unknown cost of underselling a home cost this naïve lady $560,000. When the agent from Upside Realty discovered that the home she had just sold on behalf of the elderly lady for $880,000 was immediately resold for an extra $560,000 being a total of $1,440,000 the agent was perturbed. She simply replied, “But the lady was very happy with the $880,000”.

And this is the measure that many agents call success. Yes, duped sellers may be happy. They get what they believed was a great price. But they didn’t realise the true value of their home. Most homes (at least 80 per cent) are undersold. And most sellers never realise their homes have been undersold.

Cheap agents get cheap prices because they are incompetent. They have poor negotiating skills.

In July 2023, Upside Realty went into administration.

CHEAP AGENT INVASION OF AUSTRALIA.

In 2016 an English based real estate company vowed to revolutionise the Australian real estate market. They would sell home for no commission. Sellers only had to pay $6000 up front. That was called a service fee. As it was paid in advance – before a home was sold – and the individual salesperson was instantly paid, there was no incentive for the agent to do more work. Yes, no commission often meant no sale. And the real estate group kept the non-refundable service fee – which was later increased to $8,000 per property.

The whole scheme was a disaster. It attracted the least skilled, least motivated, and surely the least intelligent of Australia’s agents. “The dregs” as one critic quipped.

Many homes were unsold. So the sellers had to hire a normal real estate agent. So, as well as paying a $6000 service fee to the discount agent who claimed to charge “no commission” the sellers also had to pay a normal agent. This meant that thousands of sellers were much worse off financially than if they had completed rejected the ‘discount agent’. Plus the stress. The English company had predicted that Australia’s home sellers would rush to this new real estate service. But no. More than 75% of home sellers who had a presentation from an agent of this company rejected them.

Many sellers who did sign-up did rush. They rushed to complain. Negative reviews peppered the Internet. A couple of typical ones: First, “My aunt went with them to sell her house. Her agent was next to useless – barely did anything to sell the place and when it didn’t go in the first two weeks, he started pushing her to drop the price when it was already underpriced. It has put me off using them or any other real estate business like them.”
Second, “Unfortunately we are dealing with this useless company, they keep telling us to drop the price. I have had enough of them. The salespeople are so useless. They don’t care because they still get paid even if they don’t sell! Very unprofessional lot.”

After two years, this company closed its great Australian revolutionary adventure. And retreated back to England.

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This is an excerpt from Neil’s latest book “EVERY QUESTION YOU MUST ASK BEFORE YOU SELL YOUR HOME”. To pre-order the full book, click on the cover below.