Discount Brokers Can Make Selling a Home Less Costly

Traditional brokers face increasing competition from fee-for-service brokers who charge only for those services the consumer actually buys. Consumers with the option of choosing a fee-for-service broker can save thousands of dollars by purchasing only those services they need.

Consumers can save thousands of dollars in commissions.

Certain States Require Consumers to Purchase Brokerage Services

A number of states have enacted laws that require consumers to purchase  brokerage services they may not want, with no option to waive the extra items. These so-called “minimum service” laws diminish consumer choice and raise the cost of selling a home.

What Services Do Traditional Full-Service Brokers Offer?

Traditionally, real estate brokers have performed virtually all services related to buying and selling a home, including:

• Marketing the home.
• Marketing services include listing the property in the local multiple listing service (MLS), placing advertisements in local media and on the Internet, and hosting open houses.
• Reviewing contracts.
• Contract review might include providing advise on pricing, home inspections and other contractual terms.
• Negotiating with potential home buyers and sellers.
• Locating potential properties for prospective buyers.
• Arranging for prospective buyers to inspect properties.
• Providing prospective buyers and sellers with pertinent information about a community such as relative property values, most recent selling prices, and property taxes.
• Apprising potential buyers of financing alternatives.
• Assisting in the formation and negotiation of offers, counter offers, and acceptances.
• Assisting with the closing of the transaction.
• Closing services might include assistance with  handling paperwork.

What is a fee-for service broker?

Brokers willing to sell a subset of real estate brokerage services, often called fee-for-service brokers, have emerged throughout  the country.

Fee-for-service brokers “unbundle” the package of real estate services typically offered by traditional full-service real estate brokers and charge a fixed hourly fee for specific services, such as listing the house in the MLS, negotiating  or closing contracts, and pricing the home. These brokerage  models enable consumers to save thousands of dollars by allowing them to purchase only those services they want.

Why would some consumers use a fee-for service  broker?

Most consumers want to make as much money as possible on the sale of their home and spend no more than necessary when purchasing a home. In many cases, the standard broker’s commission can offset a portion of the equity value that has been building up in a seller’s home or push the price of a home beyond a buyer’s purchasing power. Consumers who want to perform some of the steps involved in selling a home can reap significant financial  savings by purchasing only those real esate brokerage services they actually want.

Just as the Internet has made it easier for consumers to save money by directly purchasing plane tickets and stocks, it is now making it feasible for home sellers and buyers to do more of the work themselves and pocket the savings.

How do minimum services laws work?

Minimum service provisions are laws or regulations that dictate the services that a consumer must purchase when entering into a relationship with a real estate broker. They do this by requiring real estate brokers to provide a bundle of services whether the consumer wants to buy all of them or not. In states with such provisions, brokers  cannot  agree to  provide consumers with less than the required services.

While many consumers do want to buy all  the services these provisions  require a broker to provide, other consumers prefer to save money by performing some services themselves.

Which states have enacted minimum service laws?

Nine states require consumers to purchase more services than they may want, with no option to waive the extra services: Alabama, Idaho, Illinois, Missouri, Texas, Utah, Indiana, Iowa, and Washington.
An additional eight states have minimum service requirements but allow consumers to waive those extra services, preserving choice. Those states are Delaware, Florida, Nevada, New Mexico, Ohio, Pennsylvania,Tennessee and Wisconsin.

How do minimum service provisions harm consumers?

Minimum service provisions harm consumers two ways.

1. First, they reduce consumer choice by forcing consumers to purchase real estate services they may not want.
2. Second, they often lead brokers who previously offered less than the mandated package to add more services and charge higher prices.

No evidence has been presented to the Antitrust Division indicating that  consumers are better off with minimum-service  laws.

Do minimum service laws result in better service for consumers?

Minimum service laws do not ensure quality. They merely require that real estate brokers provide–and consumers purchase–more services .

State policy makers concerned with ensuring quality real estate brokerge services can help in other ways–by fostering competition among real  estate brokers and by enforcing existing state licensing, continuing  education, and disciplinary rules.

Are minimum service laws necessary to ensure that consumers receive all  the services they expect brokers to provide?

The Antitrust Division has found no evidence that fee-for-service  brokerage models confuse customers about the services offered . On the contrary, fee-for-service real estate brokers generally are clear about  what they will and will not do. According to a 2005 survey by Murray Consulting and Harris Interactive, most home sellers correctly under stand that they will receive fewer services when they opt to use a broker who is not a traditional full-service real estate  broker.

States wishing to create additional safeguards in this area can do so in ways less damaging to competion than minimum service laws. For example, requiring all brokers–traditional or fee-for-service—to disclose to consumers precisely what services will be provided would not only prevent confusion but also increase consumers’ awareness of what they should be getting for their money.