It’s not uncommon for competing agencies to offer massive discounts on their real estate fees just to win business in a cutthroat market. Whilst this practice may win some new business in the short term, the long-term result is not particularly good for the industry or vendors alike.
Why would an agency discount their fees?
When two agencies are pitching for a sale and they have the same level of service to offer, the same amount of experience and expertise and the same expected performance outcome, the only point of difference from a vendor perspective is going to be their fees.
Agencies might feel the need to discount their fees at times when the market is excellent and there is pressure from vendors. Many vendors undervalue the role of an agent, and think a property can sell itself, particularly when the market is strong and properties can sell within a day of being listed. They believe any agent will do, and they will get the same result from anyone, so why pay more in fees if they don’t have to?
In a slower market this doesn’t happen as much. People will seek out a better agent because they realise the market isn’t strong and they’ll need help selling their property for a good price.
Why is it a bad practice?
When the only thing that makes you different as an agency is that you’re the cheapest, it’s going to be a race to the bottom fairly quickly. It won’t take long before the cheapest agency will be undercut again, and pretty soon agents will be working for nothing.
If discounting becomes this bad, it is certainly going to damage the real estate industry and send a message that an agents role is not a valuable one, and perhaps they aren’t needed at all.
Why vendors should be wary of agencies that discount
Vendors who are able to negotiate a discounted rate with their agent should be wary! If it’s easy to talk them down, perhaps they aren’t very good negotiators. Is this the kind of person you want selling your home for the best possible price?
It also sends red flags to a vendor that if the agency is willing to cut its fees so much, maybe they aren’t very good. Are they desperate for work because their service isn’t worthwhile enough to win them repeat business? The saying “you get what you pay for” is a generalist one, but can certainly be applied to the real estate industry too.
Many agencies that charge more are happy to be one of the most expensive. They know their value and the value they bring to their clients. It’s far better for an agency to explain and justify why their fees are fair, rather than devalue themselves and offer a discount. Vendors are usually happy to pay more if they are going to get a better outcome for the sale of their property.
As an agency in a country where real estate laws are deregulated, you have the right to charge whatever fees you consider to be appropriate. Where overcharging is unethical and undercharging lowers your deemed value, finding a happy medium for your real estate fees is the key.