The best “discount” broker is a traditional, full service brokerage firm that never openly discounts their services, but agrees to discreetly reduce their commission for customers.
Why? To understand the contradiction of why you shouldn’t hire a discount broker in NYC if you are looking to reduce commissions, let’s first remind ourselves of how New York City’s real estate market operates.
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What this means for NYC’s real estate brokers is that they are the luckiest and wealthiest agents in the world.
Even though technology has crippled commission rates in the rest of the world and London’s average commission is only 1.5%, NYC commissions have remained extremely close to 6%.
What this means is that NYC real estate agents want to keep things exactly the way they are. There are over 50,000 agents in NYC who would like nothing more but to see the 6% commission gravy train continue forever.
It’s virtually impossible to negotiate down your commission when choosing a listing agent due to the oligopolistic control a few large brokerages have over the entire market.
NYC real estate agents don’t like discount brokers. The city’s powerful real estate community will do anything and everything to stop companies or agents who try to reduce commissions in New York City.
You may be asking yourself: Why should I care of other brokers don’t like my discount broker? For you to ask this question as an industry outsider makes a ton of sense.
That’s until you realize that over 75% of buyers are represented by these buyer’s agents who hate discount brokers.
As a seller, you NEED the cooperation of buyer’s agents in order to successfully find a buyer to your listing.
Therefore, by working with an openly advertised discount broker, you run the risk of buyer’s agents boycotting your listing and sending their buyers elsewhere.
Is it even legal for traditional brokers to decide to boycott and avoid discount brokers? How does the industry get away with anti-competitive behavior like this?
While it’s certainly illegal for any agent to boycott a discount broker, the reality is that it’s very hard to prove and/or prevent.
From the moment a brokerage begins marketing itself as a discount broker, it automatically suffers in reputation among the community of NYC brokers.
The instant a discount broker in NYC begins to offer buyer commission rebates and flat fee MLS listings is the moment that other brokers begin to “boycott” the discount broker.
Our partner brokers are not discount brokerages, we’ll explain more later on why this distinction is so critically important.
Even though “boycotting” is technically illegal under New York real estate licensing law, in practice it is extremely difficult to enforce. How can the NY Department of State regulators practically prove that a certain full-service brokerage is refusing to show the discount broker’s listings?
The full-service broker could provide any number of plausible reasons for why he hasn’t done much business with the discount broker such as:
Buyer clients not interested in the types of NYC apartments listed by discount broker
Dealing with discount broker is equivalent to dealing with the owner directly
Discount broker is not reputable and thus their listings are avoided by buyers
Although the practice is illegal and not in the best interests of buyer clients, it is hard to prosecute for a few reasons:
In NYC exclusivity agreements between buyers and agents are extremely uncommon
The lack of any agreement between a buyer and agent makes a tough case for claiming agents aren’t providing fiduciary loyalty to the buyer
Agents do not consistently provide the NYS agency disclosure form for buyers and sellers (an optional to sign form for clients so they understand whose interests the agent represents)
Exclusive buyer agreements are only seen for foreign buyers who heavily rely on a local exclusive buyers agent in NYC for their purchase
As a result, it is very tough to make a case against an agent for not showing a buyer all available listings including those sold “FSBO” or via a discount broker.
The agent cannot be expected to work for free, so it would not make sense for an agent to introduce a buyer to listings where he may get completely dis-intermediated (i.e. FSBO listings).
In that same vein, if the discount broker has a poor reputation in the broker community and is actively causing damage to the industry then it is similarly tough to prosecute the agent for avoiding said discount broker.
Why do some of these discount real estate brokers in NYC fail?
Simply put, because they often have a reputation as a sneaky way to get FSBO homeowners onto the local MLS (the local MLS in NYC is actually not a MLS, it’s RLS – REBNY Listing Service).
Because they have this negative reputation, and are sometimes very loud about their “disruptive” tendencies, other brokers will naturally harbor negative sentiment towards them.
And in real estate, there are two actors (i.e. 2 agents) to most transactions vs other industries that have been disrupted such as travel booking or insurance (i.e. single agent transactions).
And because you need the cooperation of 2 agents to close the typical transaction, each agent will need the goodwill of other agents in the community.
This is the reason why real estate commissions in NYC and across the nation have remained so stubbornly high.
What are some examples of full service agents not cooperating with discount real estate brokers in NYC?
Treating all listings by discount real estate broker in NYC as FSBO listings
Refusing to show buyer clients the listings of discount real estate broker in NYC
Actively poaching the owner clients listed with the discount real estate broker in NYC
Writing embarrassing emails to owners directly
Claiming that their voicemails never made it to the owners
Reporting listings of listings of discount real estate broker in NYC to StreetEasy etc as “open listings” which should be removed
Fortunately, Hauseit connects discerning NYC home owners and home buyers with traditional, brand name, real estate brokerages who have privately agreed to offer buyers and sellers low commission real estate listing and buying options.
All Hauseit partner brokerages are independent, full-service real estate firms that are established members of their local real estate board (i.e. Real Estate Board of New York, Hudson Gateway Association of Realtors, Long Island Board of Realtors, etc.) who never advertise or promote discounted services.
As a result, this means that as a seller you can pay less commission without having to worry about buyers’ agents boycotting your listing and reducing your chances of getting the highest price or selling at all.
What you get by listing your home for sale with a Hauseit partner brokerage:
Full buyer exposure by listing with a traditional, full-service real estate brokerage
Professional Pricing Analysis and CMA
Listing on RLS (NYC MLS) and dozens of popular websites
Professionally Managed Open Houses and Buyer Showings
Offer Screening, Negotiation and Professional Advice
Board Package Application and Closing Assistance
Have the power of over 16,000 REBNY members and 30,000 licensed real estate agents in NYC working to find you a buyer
After years of experience in the field, we are confident to say that the 1% full-service listing option affords sellers with the best balance between commission savings and overall convenience and peace of mind.
For those that do not have time to manage their own showings and negotiation, Hauseit’s Agent Managed Listing provides sellers with a full service real estate listing for a discounted price of only 1% commission to the listing agent.
This compares extremely favorably to having to pay 6% in a traditional exclusive right to sell listing agreement. In such an agreement, the seller has to pay 6% regardless of whether the ultimate buyer is represented by an agent or not.
If the buyer happens to be unrepresented, the listing agent will get to collect all 6% in commission!
What Are the Risks to Buying a Home in NYC with a Discount Broker That Provides Commission Rebates?
So not only is working with a great buyer’s agent free for home buyers, but you can also get a commission rebate from what your buyer’s agent earns?
So you’re saying that it’s possible for the commission that the listing agent splits to your buyer’s agent to be given to you as a closing gift? How can this be not too good to be true?
What’s the hidden catch? Because if you can get paid to have a buyer’s agent help you for free, why isn’t everyone doing it?
Unfortunately for home buyers who are lured by the promise of commission rebates from discount brokers who are no more than one man shops or mom and pop operations at best, it’s not so simple to just collect a commission split as a rebate broker.
That’s because traditional listing agents control virtually all of the inventory in NYC, and why would a traditional listing agent so willingly and readily split commission with a barely legal fly by night operation who is openly advertising what they’re doing?
Fortunately, home buyers can discreetly and safely receive a buyer’s broker commission rebate without jeopardizing their home purchase through one of Hauseit’s brand name, traditional partner brokers.
Our highly rated, full-service, independent partner real estate firms never openly discount or tarnish their reputations in any way by openly offering to work for less. As a result, our partner brokers maintain great working relationships with the wider brokerage community.
You’ll have the opportunity to work with an experienced buyer’s broker who will not only guide you through one of life’s most complex transactions for free, but will discreetly provide you with a commission rebate check for $20,000 or more post-closing.
Best of all, the seller and listing agent won’t automatically know you are getting a better deal! It’ll be our little secret!
The first edition of this article was originally published on 3/8/2016
Disclosure: Hauseit® and its affiliates do not provide tax, legal, financial or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. No representation, guarantee or warranty of any kind is made regarding the completeness or accuracy of information provided. Hauseit LLC is a Licensed Real Estate Broker, licensed to do business in New York under license number 10991232340. Principal Office: 148 Lafayette Street, New York, NY 10013.