Dangers of using a limited service discount broker

What is a limited-service discount broker?

A limited-service discount broker is normally an agency that offers to list your home for a low flat fee, usually below a $1,000, and you're expected to do most of the work. BE CAUTIOUS if the agency claims to be full service. It's almost physically impossible for an agency to provide the attention needed to really service your listing and still make a living. Because their fee is so low, they have to focus on getting more listings rather than servicing your sale in order to make a living.

This video could literally save you thousands of dollars and keep you from making a bad mistake. What am I talking about? I'm talking about using a flat fee limited-service agency. This is an important topic because when you use a limited-service agency you put yourself at risk, at least financially. I know because I used to be a limited-service agency. I've seen the problems that occur as a result of this type of service.

A limited-service discount brokerage typically will list your home on the MLS for a small fee and you do all the rest. They only offer their expertise if you ask for it but remember you don't know what you don't know right? They may be standing by to answer your questions but if you don't know what questions to ask, you still put yourself at risk.

With a limited-service agency you have to price your own home, stage your own home, negotiate your own offers, track your deadlines etc. Many homeowners feel they can do the work an agent does because they don't understand what agents do. They don't understand that 80% of what you pay for is their experience and expertise.

When I got into real estate 14 years ago, I started a limited-service discount brokerage. I thought we were providing great service to our customers by saving them the listing commission and letting them do the work an agent would do, but I was wrong. There's a reason agents are required to have 120 hours of education, they must be licensed, must work under a broker, and are required to have continuing education yearly. The average homeowner does not have the training or the experience. Selling your house yourself isn’t as simple as selling your car yourself.

As a limited-service agent, I saw many homeowners who didn't know what they were doing and therefore lost thousands and thousands of dollars and they didn't even know it. I saw many clients price their home far below market value giving away much of their hard-earned equity. These people would list their home and a day or even hours later they would have several offers; a sure sign they had priced their home too low. Because I was curious, I found myself doing my own market analysis on their home and sure enough, they had priced the home far below market value. I felt bad and I kept telling myself they knew the risks, but in the back of my mind I was feeling guilty. Had I been a full-service agency this wouldn't have happened.

Then there were those clients who priced their home too high. Their home would sit on the market for months with no offers. After several months they would cancel their contract and a week later it would be back on the market listed by a traditional, 6% agency, at a much lower price. Of course, now their home sold because it was priced correctly, but they paid 6% to sell it. This group literally paid thousands of dollars more in commissions than they needed to.

Sometimes these limited-service discount brokerages will provide a home value report to help you price your home, but you can't always rely on a home value report alone. For example, this summer a client called to sell their home. The home was in really rough condition and they needed at least $240,000 in order to break even. However, I wasn't sure we could sell it for $240,000 in its current condition. We did a home value report and determined that this home, in good condition, should sell for $265,000-$270,000. We figured if they put $15,000 into the property, they could easily sell it and have $5000-$10,000 left over. It actually cost them $20,000 but it looked really great and we knew it would sell quickly.

We were in an appreciating market and home value reports use historical data right? So we thought just maybe it would sell for more than what the home value report indicated. So we decided to list the home for $299,000 and two days later we got an offer for $301,000. I think they walked away with $40,000 in their pocket; $40,000! Now do you see the value in using a full-service agency? They were going to sell their house for $240,000. Had they used a limited-service agency, they would have just broken even with nothing in their pockets.

Another issue I saw on a regular basis was poor contract negotiations. Most homeowners don't really understand the contract and what the clauses in each of them really mean and the repercussion each of them might have on their sale down the road.

For example, we listed a home for $1.1 Million. After the home had been on the market for about two months, we received a cash offer for $1,050,000. Two weeks later, I received a cancelation notice from the buyer. It said they were canceling because the seller refused to abide by the contract. I called the seller and he said he didn't like the terms after all and wanted to change them, he didn't think there was anything wrong with that. Long story short he called and canceled the contract with us, and a week later it's back on the market with another agency advertising the home as a short sale.

I found out later this guy was in default. They ended up selling the home for $650,000.  I looked on the county records and estimated he owed about $800,000. Again, if we had been a full-service agency, this wouldn’t have happened and he would've walked away with around $200,000 in his pocket. Instead, he walked away with nothing and a short sale on his record.

After several years of seeing these types of experiences, I realized that I wasn't doing my clients any favors by listing their homes for a small fee and having them do the work. I knew I had to find a way to provide full service and also save them money at the same time.  

Utah Home Central is now a full-service, discount brokerage. Whether you're experienced or inexperienced, you can now sell your home with confidence and still save thousands of dollars in commissions. 

You may also be interested in watching our video on the 5 critical mistakes home sellers make that cost them thousands of dollars.