Myth of the Discounters
An independent study by Texas A&M University revealed there is little, if any, savings for sellers who utilize discounters or limited service companies. The study of 55,000 residential transactions found that discount companies sold their listings for 1.7% less than full-service companies and took 17.1% longer to sell.
The 1.7% reduction is sale price offsets the average 2% commission savings of most discount companies (i.e. 4% vs 6%), resulting in a negligible net dollar gain for the seller.
Most of the study results were statistically significant, indicating valid relationships exist between limited service representation and agent experience and marketing performance (time to sale and sales price). Licensing type did not demonstrate such a clear relationship.
Interestingly, the empirical results from the models show that limited service listings sold for 1.7 percent less than typical exclusive-right-to-sell listings and took 17.1 percent longer to sell. Given that the typical discount offered by limited service brokers is approximately 2 percent, there does not appear to be any net gain to sellers using limited service representation.
If the limited service broker charges a total 4 percent commission, then the commission plus the 1.7 percent lower price is approximately equivalent to a 6 percent commission from the seller’s perspective. If this result holds up in additional studies, it would indicate that limited service brokerage offers no dollar advantages to the seller over typical brokerage when using the exclusive right to sell contract.
One observation is that discounters work on volume and may not be able to fully represent, promote and conduct a thorough analysis of the market, neighborhood and pricing of the listings they are taking, and thus, detrimential to the seller’s best interest.
Article was originally posted on 6/19 and re-created on 6/22.