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Is a rebate real estate brokerage better for consumers?

By February 25, 2015 One Comment

Just like Skynet in the movie “Terminator 3: Rise of the Machines,” rebate real estate brokerages seem to be taking over the planet. Love or hate them, they are here — probably here to stay.

If you are not aware, a rebate real estate brokerage is where the real estate company or agent lists your home and, at closing, the buyer or seller receives money back in the form of a rebate. The rebate in many instances comes from the real estate agent’s commission. The going rate for a real estate agent’s commission on the buyer and seller side is 3 percent apiece (6 percent total). This means that for every $100,000 of real estate sold, a total of $6,000 is paid in commissions.

A rebate real estate brokerage’s selling proposition is the client shouldn’t pay that amount of money for their services. Instead, they pledge to do the same amount work while allowing the consumer a discount at the same time. Seems like a great proposition for someone looking to sell their home, right? Let’s break down the differences between hiring a rebate real estate brokerage and a traditional real estate agent who works for a full commission.

Paying less can sometimes mean paying more

Agents at rebate brokerages work hard; they are just compensated differently than the traditional real estate agent working at companies like Keller Williams or Re/Max. They also charge clients differently for services rendered. The issue is that most of the general public lump real estate agents and brokerages into one big category, meaning that they look at them in a similar way. Although this isn’t an accurate perception, it has led to the rise and success of the rebate real estate brokerage. The consumer sees two agents or companies; one of them will do the job for less or give money back, so why not use that option when buying or selling your home?

What the average consumer doesn’t know is that in many cases, paying less means paying more. When you hire someone to do a job for half-pay or a straight fee instead of what they would traditionally make, you receive a different level of experience. This different experience level can lead to:

  • An incorrectly priced home — too high or too low.
  • Secondary level of local real estate knowledge.
  • Weak negotiating skills with the purchase contract or offers.
  • Low-level marketing skills and budget, and limited ability to expose your property.
  • Not available around the clock.

When all or some of these things come into play, it can cost the person selling or buying a home money … lots of money. Yes, you are paying less, but you might also have less money in your pocket at the closing table.

Rebate agent vs. traditional Realtor

Both passed the same tests and have a real estate license. Both work for real estate companies to earn business, but after that, their business models are a lot different. Here is a quick rundown of the differences:

Traditional Realtor

  • Commission only.
  • Must close transactions to get paid.
  • Self-employed.
  • Generates their own leads.
  • Must learn multiple strategies to gain clients.
  • Spends upfront money to market homes to gain the correct exposure.
  • Available 24/7 for clients in most cases.
  • Works seven days a week and has real estate as their full-time job/career. (Some agents are “part time,” but most successful agents are full time and treat their real estate business like a business.)
  • Usually put through extensive training to negotiate purchase contracts closer to asking price and increase marketing knowledge to get more eyes to your property.

Rebate agent

  • Generates very few leads. Instead, works the leads generated by the brokerage’s marketing department.
  • Sometimes paid a monthly “salary” by the brokerage, making them employees.
  • Commissions are smaller than those of a traditional Realtor’s and can be affected by customer surveys on their experience. Less money is paid in commissions for lower survey numbers.
  • Listing “packages” are sometimes presented for purchase. In these packages, the more the client pays, the more they get back. If a client wants to put in a small amount of money or wants more money back at closing, then they might not be speaking much to your agent except at the beginning and when an offer comes in. Very little time and attention is invested into clients or their properties.
  • Some agents work part time. Real estate is their second job, not a full-time calling.
  • When the transaction is over, you might not hear from your agent again because the consumer is a client of the real estate brokerage, not the agent.

So … are rebate brokerages worth it?

Even though both agents and companies work with consumers helping them buy and sell real estate, there are differences. It comes down to “what type of real estate buying/selling experience do I want?” For some consumers, using the rebate real estate brokerage has an appeal because getting money back at closing is critical. For others, working with a real estate agent who works around the clock in the business and has extensive experience marketing properties, accurately pricing homes and negotiating contracts is imperative. Buying or selling a home is something clients don’t do every day, so they want to make sure they have the highest-level professional they can find to handle that financial transaction. Someone with lesser knowledge can end up costing them thousands of dollars.

If traditional real estate agents don’t learn to become more relevant to the consumer and cannot show the differences between the rebate real estate brokerage and their brokerage, they will continue to lose business. Those differences can be demonstrated through real estate video, creating effective online content, better farming strategies and getting rid of the generic mailers that get thrown in the trash. You can overcome the selling proposition of the rebate real estate brokerage, but evolving and elevating your value proposition is a must if that’s your end goal.

Wade Vander Molen is the director of sales/marketing for Stewart Title and has been in the title industry since 2005.

Email Wade Vander Molen.

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