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NON-TRADITIONAL BUSINESS MODELS FOR REAL ESTATE BROKERAGES

More and more consumers now prefer to use brokers whose business models are alternatives to the traditional ones.

FULL-SERVICE DISCOUNT BROKERS

Discount brokers offer buyers and sellers full-service real estate brokerage services at a price lower than the prevailing commission fees.  For example a discount broker may offer all of the services provided by a traditional broker for a 3% or 4% commission in an area where 6% or 7% is the prevailing rate.  These brokers may also offer rebates to buyers (i.e. cash payment).  Rebates are an important form of price competition under the traditional structure of real estate transactions because the seller and the seller's broker, not the buyer's broker, determine the amount of the buyer's broker's commission via the listing agreement. Without rebates, if the buyer's broker were simply to reduce his or her commission, the savings would go to the seller's broker, and not to the homebuyer. By returning money to the homebuyer, rebates can also benefit home sellers, because buyers will have more to spend on the home as opposed to commission payments.

FEE-FOR SERVICE BROKERS

Fee-for-service brokers sometimes referred to as "flat-fee" brokers or "limited-service brokers - represent a departure from full - service brokers who typically charge a commission based on the sales price in return for a bundle of services. Fee-for-service brokers offer home sellers the option to purchase less than full bundle of services full-service brokers provide. Different fee-for-service brokers may offer different arrays of services, and home sellers can pick and choose the services they wish to procure.  This business model is likely to benefit consumers who do not want to forgo broker assistance completely but who feel comfortable handling many aspects of the transaction without assistance.

Fee-for service brokers may often offer MLS-only package, which allows consumers, who are not permitted by MLS rules to list their homes in the MLS on their own, to list their homes in the MLS by contracting with a broker who is a member of the local MLS. For a flat fee (e.g., $500), the broker would list the home in the local MLS and make an offer of compensation in the MLS to other brokers who may cooperate in the sale of the home. The broker typically retains the flat fee whether or not the home ultimately sells. If a cooperating broker ultimately secures a buyer for the home, he or she would receive the cooperating commission. A seller who finds a buyer without the help of a cooperating broker however, would not pay this commission.  Home sellers should be aware that many homebuyers are hesitant to make an offer on a home that is listed with this type broker. Their concern is that this type of home seller is really not informed enough to handle the transaction on their own without serious problems arising.

VIRTUAL OFFICE WEBSITE BROKERS

VOWS are Internet websites through which brokers offer brokerage services to their registered clients. The unique feature of VOW operators is that these brokers offer their clients the ability to search online the same MLS information that other brokers provide to their clients through other delivery methods, such as hand delivery, mail, fax, or email. Uner the National Association of Realtors rules, VOWs may provide clients with more MLS information than can be provided by publicly accessible broker websites. Most real estate brokers that have websites that provide the public the opportunity to search the MLS. They provide the user with less information than the VOW websites. However all a consumer has to do to receive more information is to request that the broker whose web site they are on to send them more information on a subject property. That broker can then email them a complete copy of the listing direct from the MLS. 

According to the National Association's 2006 Profile of Home Buyers and sellers, 83 percent of home sellers who retained a broker used one that provided the "full" array of services and that includes the discount broker. 8 percent hired a broker who listed the seller's home in the MLS and performed few, if any, additional services; and 9 percent hired a broker to provide a broader array of services, but short of full service.  NAR data also shows that For sale by owners (FSBOs) - Consumers who sell their home without the assistance of a real estate professional - has declined.