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How to compete against discount brokerage firms

Some 24% of brokers surveyed in RealTrends Q2 2021 Broker Sentiment Report said that discount brokerages were a top competitive threat. We’re here to tell you, they’re not as big a threat as you might think. Let’s break it down.

Since 1977, there have been organized discount brokerage firms or flat-fee firms offering services to consumers. In some cases, these lower-cost or discount brokerage offerings also had a reduced service offering. From that time onward, this segment of the industry has never garnered more than 2% to 3% of the home sales market.

RealTrends has employed a professional consumer surveying organization, Harris Insights, numerous times in the past 20 years to study the issue of consumer preferences, habits, and thoughts about the use of realty services. These studies included groundbreaking work such as Room For Improvement (2001), How Homes will be Bought and Sold (2005) and The Consumer Tsunami (2006). Since then, we have also run such consumer studies in 2011, 2014 and 2018.

What consumers want from real estate agents

In each case, consumers indicate that they want to work with someone they trust to help them negotiate the price and terms of a sale or purchase and navigate the entire process of buying or selling. They also want to work with someone who communicates well throughout the process. In research studies, we sometimes inquired about the cost of the services or their use of ‘do-it-yourself” approaches. In no cases did consumers think the cost, or the system was unfair to them.

With today’s tight market, it’s more tempting than ever for consumers to consider not using a real estate agent since homes fly off the shelf at prices above what even experienced agents can imagine. And the airwaves are full of offers from discount brokerages and flat-fee realty offerings that say the same thing.The best defense against this has always been to differentiate what you do for a seller or buyer that is not available from typical discount offerings, such as

  • Experience
  • Strong communications
  • Working with someone you know and trust
  • Fully helping navigate the price distortions in the market today
  • Handling the negotiations. 
  • Navigating the process of the entire transaction and assuring a smooth process

Students of business have understood that for our business, and many others, if it were always and only about the cost of the service or product, then every business except the lowest cost provider would be out of business. That is still the case for today’s residential realty agents and service providers. The market share of full-service, full-fee realty services remains above 90%.

Challenges today

There are more challenges today than ever before, from iBuyers and corporate-owned housing to behemoth online realty firms preaching that theirs is the better and low-cost way. It does not mean that there isn’t stronger competition coming from these and others that are new to the industry.

It does mean that traditional real estate agent services must compete in the market on the basis of experience and personal experience, on being truly full service; however, a brokerage or agent may define that for themselves. 

In these historic times in the housing market, remembering to communicate these basic principles is what will work best to remind consumers why the overwhelming percentage of all consumers choose to go with an agent who they know, with proven expertise and is available to them.

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Mar 30, 2023 By