Sharon Mather found herself at a crossroads when she decided to sell her residence in Long Beach, California. Concerned about the hefty standard commission charged by listing agents, she explored alternatives. Eventually, Mather struck a deal with a discount real estate broker who agreed to market her property for a mere 1% fee, significantly below the typical 2.5% commission levied by listing agents.

In conjunction with the 1% fee for her listing agent, Mather also compensated the buyer’s agent with 2.5%, resulting in a swift sale of her home. Remarkably, her total selling expenses amounted to just 3.5%, well under the customary 5%.

Based on her property’s sale price of $400,000, Mather incurred $14,000 in broker fees. Had she adhered to the conventional 5% rate, Mather would have shelled out $20,000 to the agents involved in the transaction.

So, what exactly is a discount real estate broker? Essentially, Mather engaged an agent operating at a reduced rate. Similar to this breed, other discount brokers offer commissions as low as 1% or may opt for compensation through a flat fee, often ranging in the few thousand dollars.

However, lowering their compensation doesn’t necessarily equate to a reduction in service quality. While business models differ, many discount brokers provide assistance with listing, marketing, and negotiation on behalf of sellers, mirroring the services offered by traditional real estate agents.

The extent of discount broker commissions varies. For instance, Seattle-based Redfin, one of the nation’s most prominent discounters, advertises listing fees ranging from 1% (applicable when both selling and buying through them) to 1.5% (for selling only). In contrast, average commissions with major brokerage firms like Anywhere Real Estate (formerly Realogy Corp.) tend to be significantly higher.

Anywhere Real Estate, which boasts brands such as Coldwell Banker, The Corcoran Group, and Sotheby’s International Realty, reported an average transaction-side commission rate of 2.41% in the first half of 2022. If commissions are equally divided between the listing agent and the buyer’s agent, this implies an average commission of approximately 4.82%.

The landscape of real estate commissions has undergone notable changes. In the pre-internet era, commissions typically hovered around 6%, though the current norm has dwindled to 5% or less. Technological advancements initially suggested a decline in real estate fees akin to stock brokerage and travel agent fees, yet the reality has been different.

Commission rates did decrease during the early 2000s housing boom, only to rebound during the housing bust when selling homes became more challenging. Subsequently, commission rates began declining again, hitting record lows in 2021. According to REAL Trends, the average commission dropped to 4.94% in late 2021 from 5.40% in 2012.

Due to the nature of their service and individual-oriented profession, generalizing about discount brokers proves challenging. While some may offer services akin to traditional brokers, others may adopt a more cut-rate approach. Nonetheless, this variability isn’t exclusive to discount brokers, as traditional “full-service” agents may also vary in their level of dedication.

Certain discount brokerages may forego services like multiple open houses or assistance with home staging, which are typically provided by full-service agents. Hence, it’s crucial to ascertain the exact duties your agent will undertake before finalizing any agreements.

Moreover, it’s essential to grasp how discounted rates are applied. Typically, it’s the listing (seller’s) agent alone who takes a reduced commission, while the buyer’s agent’s commission remains unaffected.

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