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Competing Models of Real Estate Brokerage

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 advice on pricing, home inspections or 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.

For these efforts, real estate brokers typically charge a single fee (the commission) that is 5 percent to 6 percent of the sales price of the home.

Learn more: The Seller’s Agreement with the Listing Broker

Other options available to consumers

In many parts of the country, the traditional full-service real estate broker now faces competition from a variety of real estate brokerage models, many of which use the Internet to reduce costs:

Fee-for-Service Arrangements

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 set or hourly fee for specific services, such as listing the house in the MLS, negotiating or closing contracts, and pricing the home. These brokerage models typically enable consumers to save thousands of dollars by allowing them to purchase only those services they want.

Learn more: Fee-for-Service Brokers

Rebates and Inducements

Some real estate brokers have increasingly begun to compete for customers by offering cash rebates or other inducements to home buyers and sellers. Rebates that go directly to buyers or sellers lower costs on both sides of the transaction. Cash rebates are usually calculated as some fraction of the broker's commission and can result in thousands of dollars being returned to the consumer.

New business models can save consumers money

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 estate 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.

Learn more: The Internet’s Role in Real Estate Brokerage

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