The Real Estate Differences between Full-Service, Discount, or "For Sale by Owner"

Between doing it yourself and paying full freight for an agent, there are discount real estate brokerages where, effectively, an agent puts you into the Multi-List and you do virtually everything else.

That may be a bit harsh, but you get limited services, most revolving around the marketing of the house, and then you do the open houses, the showings, the price negotiations, and the rest. The agent then gives back up to half of his share of the commission when the sale is completed.

Let's go back to that $200,000 example.
The listing agent normally would get half of the $12,000 or so commission on the property (assuming there is a subagent or buyer broker for the bidder). That would make your take about $3,000.

That said, you might consider a discount situation a bit like looking at an a la carte menu at a restaurant. If you purchase a full meal, it is typically cheaper than buying everything piecemeal. But if all you want is the pieces, then a la carte works fine. The issue in real estate is simple; plenty of people like the idea of a discount, but they wind up needing -- and ultimately paying for -- the full service.

For buyers, the system works roughly the same way. The agent gives you a listing of the available homes in the area, and the comparative data and other information to help you bid effectively, but you set up appointments, negotiate the contracts, and all of the rest. If you do all of the work, you get to split the commission.

In both cases, however, what you really are working on is a pay-as-you-go system. You get the full split of the commission if you do all the work; if you want the agent to step in and arrange for inspections, for example, that'll cost you. Talk to your banker? Fee for that, too.

That's not necessarily bad. You might be able to save money doing a lot of legwork and leaving the tasks you dislike to someone else. Just find out up front how much those "extras" will cost you and what, exactly, you are being charged for.

The Difference between Brokers and Agents

In terms of handling the purchase or sale of a piece of property, there is no real difference between a broker and an agent. A real estate broker, however, had to first qualify as an agent, taking the requisite classes and passing a licensing exam; moving up to broker requires additional class work, a certain amount of experience in the business and another test.

By earning a broker's license, an individual earns the right to work independently and to open or operate a real estate office. An agent, meanwhile, must work for a broker.

Just because the broker is the Big Kahuna at the office does not make him a better advisor than one of his agents; plenty of agents have no desire to run an office, and plenty of brokers become office-bound and lose some of their feel for the community. You should worry more about an advisor's knowledge of the community than about the hierarchy in the real estate office.

That said, an agent can also be a person who simply handles property on the side, who does this job part-time, and who barely keeps up his standing. Either way, worry less about the credential and more about the person's experience, know-how, and understanding of the area.

By Chuck Jaffe
Chuck Jaffe is a senior columnist and host of two weekly podcasts at MarkWatch. He has also been a guest speaker on several television and radio shows.

Copyrighted 2016. Content published with author's permission.

Posted in ...