Discount Real Estate Agents: Pros and Cons
Late last year, my wife and I bought our first house. We interviewed three real estate agents and ended up settling on a discount agent -- one who charges less than the standard 3%. That meant we got the house we loved for less than we otherwise would have paid. Could a discount real estate agent be right for you?
Benefits of a discount real estate agent
The primary benefit is pretty clear: Things cost less. In Virginia, the seller pays the buyer's agent's fee (usually 2.5% or 3% of the property's price), as well as the seller's agent's fee. The buyer is responsible for most closing costs. Our agent kept 1% and gave us the rest of their 3% cut as a credit toward our closing costs -- ultimately saving us a little over $8,000. We were able to buy most of our new furniture without dipping into savings. It was a pretty big win.
To earn the same amount as other real estate agents, discount agents have to complete more transactions. Theirs is more of a volume-based game. That means that a real estate agent with fewer years in the business may in fact have helped to buy and sell a lot more properties than you would otherwise expect. That extra experience carries some obvious benefits as you're going through the home-buying process.
Challenges with discount real estate agents
The potential problems with using a discount real estate agent mirror the benefits. The volume game means discount agents almost have to be a little less responsive to you, as they're working with more buyers and sellers. Email responses could roll in a little slower than you'd like, and perhaps you'll have to schedule house tours a few days in advance. My sense is that discount real estate agents tend to be a little more transactional, too. One of the first things ours said when we met him was: "You're not going to get a fruit basket from me every year." If those little touches matter to you, then you may find working with one a struggle.
The other question you need to consider is whether this is a case of "getting what you pay for." There are plenty of great discount real estate agents out there. (My wife and I had a fantastic experience with ours.) But there are also undoubtedly some who go the discount route because they can't compete on customer service, negotiation, or some other critical component of the home-buying or home-selling process. Part of picking the right discount real estate agent will involve screening for exactly these kinds of weaknesses.
How to find the right one
When you're considering any agent (discount or otherwise), ask yourself: "What exactly do I want from this professional?" If you want white-glove treatment and constant responsiveness, you'll probably have friction with a discount real estate agent. If you need that extra level of customer service, then you're probably better off going with an agent who charges the standard fee. You're paying up for a different experience.
If you've had that conversation with yourself -- and your partner, if you have one! -- and concluded that you don't need quite as much attention, then the next step is to look at reviews online for discount real estate agents in your area. Zillow and Trulia are great places to start, and Yelp will sometimes have useful information as well. Look particularly for reviews that are less than 100% positive. Those offer great data points for figuring out A) whether a particular agent is the one for you and B) what questions you want to ask the agents you end up interviewing. We had it easy, because the discount real estate agent we picked had dozens of reviews -- all of them five-star.
The next step is to interview your candidates. I usually pick a neutral location like a coffee shop. This is a good way to test their preparation skills: If you meet in their office, they'll have everything they need close at hand, but if you meet somewhere else, they'll have to bring whatever documents and information they predict they'll need. That's a good proxy for the way they'll handle the search for your dream home, which will also happen outside of their office.
Three interview questions I like to ask
Most of the questions you'll want to ask the real estate agent depend on where you're buying, what kind of house you want, and your communication style. Ask about things that you care about and the local market in general, and you'll get a sense of what they know. Many questions are situational, but there are three that I view as universal.
The first is: "Because you charge less, you must be driving lots of extra sales volume. What do the trade-offs look like?" This is an opportunity both to learn where they make trade-offs and, perhaps more importantly, to see how honest they'll be with you. You need an agent you can trust, or else you'll be second-guessing them throughout the entire (already stressful) home-buying process. That's not a situation you (or they) want to be in. If they don't give you a straight answer, push them for one. Our real estate agent set expectations appropriately, noting that he might not be able to come view a house with us on same-day notice, and instead might need us to schedule viewings 24 hours in advance. However, he said he'd be constantly available by phone, text, or email. That was a trade-off we were comfortable with.
The second question I always like to ask is: "What lenders would you recommend working with?" Their answer can help you learn two things: What their relationships with local lenders look like, and what advice they'll give to help you get the best rate. Our real estate agent promised to email us a list of lender recommendations that evening, but he also said we did not need to feel bound to any particular lender and could shop around for up to five days after we'd had an offer on a house accepted. His good advice helped us save substantially on our home loan by shopping around and negotiating with multiple lenders. While the local lenders gave great service, we decided that the extra stress and bureaucracy associated with working with a national lender were worth it, as we were able to save so much money. Another win for us.
The third question: "What if things don't work out between us?" You want to learn the real estate agent's philosophy on what failure looks like, as well as how they'll treat you if your work and/or communication styles just don't mesh.
The real answer, of course...
...is that plenty of people interview well but may struggle when you're actually in the market with them. That's a potential issue no matter what type of real estate agent you partner with. The most important thing you can do is work with someone who will be a big help as you make one of the biggest financial commitments of your life.
But consider whether that person might also happen to be the real estate agent who will cut you a large check toward your closing costs. Even if you don't end up going with them, you'll be glad you tried for those savings.
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