Discount Brokers – A Good Idea in a Bad Economy?

Q: When is a Savings not a Savings?    A:When there’s a discount broker involved!

You may be tempted.  Saving 1%, 2% maybe even 3%.  What’s that? $1,000, $3,000, $5000?  Sounds tempting. What will you spend it on?  New clothes or pay bills?  Nah. You’ll be giving it to the buyer! 

But’s what’s with the discount broker advertisement  “……have saved sellers $20,000 to date…..” or some such claim.  That “discount” was given to the buyer by lowering the price of the home.  

 And “saved”?  What was saved by the seller?  Money? Well, they didn’t receive the higher price in the first place so the commission they pay makes them break even.  Time?  No.  On average it takes a home 35% longer to sell when the home is not advertised and thus costs the seller several months of mortgage payments. Additionally that home would sell for an average of 4% less!

Let’s check on the math:   Assuming a 97% sale to list price ratio:  

A $200,000 home listed by a full-service company (ahem…Norman Frenk – Prudential Gary Greene Realtors)  might sell for $194,000. After a 6% commission the net would be $182,360.  Adjusted for average days on the market (subtract $2000.00/month seller carrying cost) the net would be $176,360

That same $200,000 home listed by a discount company:  $200,000  x .97 list/sale price ratio: $194,000 (like above) less an additional 4% is $186,240 less Realtor fees (ok, let’s use 3% fees!) leaves $180,652 and now adjusted for 35% longer on the market or $6k x 1.35 leaves us $172,552 or about $4,000 less in the seller’s pocket!

When is Savings NOT a Savings?  Now you know.

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