How do discount real estate brokers work?

Sharon Mather wanted to sell her house in Long Beach, California, but she was reluctant to pay the standard listing agent’s commission. After shopping around, Mather found a discount real estate broker willing to market her house for a fee of just 1 percent of the home’s sale price — well below the 2.5 or 3 percent typically charged by listing agents.

In addition to the 1 percent promised to her own agent, Mather paid the buyer’s agent 2.5 percent, and her home sold quickly. Her total commission costs were 3.5 percent, rather than the typical total of 5 to 6 percent.

Based on her sale price of $400,000, Mather spent $14,000 on these fees. At a rate of 6 percent, she would have had to pay $24,000. “That’s a lot of money to save,” she says.

But is using a discount real estate broker always a good idea? Are there downsides to be aware of? Here’s what you need to know.

What are discount real estate brokers?

Mather hired an agent she found through Clever Real Estate, a nationwide service that matches bargain-hunting sellers with agents willing to reduce their fees — working at a discounted rate, in effect. Other so-called discount brokers work similarly, often offering commissions as low as 1 percent or being compensated by a flat fee (commonly a few thousand dollars, regardless of how much the home sells for).

Traditional listing agents typically charge between 2.5 percent and 3 percent per listing. With a discount broker, sellers stand to save thousands of dollars. Let’s say you sell your home for $400,000, as Mathers did. A 2.5 percent commission on a sale of that price would be $10,000, while a 1 percent commission would be just $4,000.

Some might assume that agents and brokers who discount their compensation are discounting their service, too, but that’s not necessarily the case. While business models vary, many discount brokers will help with listing and marketing your home, and negotiate with buyers on your behalf, just as a traditional real estate agent would.

Ben Mizes, Clever’s co-founder and CEO, says discount brokers have particular appeal in a seller’s market — in which bidding wars are common, marketing times are short and desirable houses often seem to sell themselves. “Sellers are left thinking, ‘Why did I spend so much money when my home sold in a day?’” he says.

How discount brokers work

A discount broker or agent offers their services for a lower commission percentage than is typical, or sometimes for a flat fee rather than a percentage. But each company operates in its own way.

Redfin, perhaps the nation’s most prominent discounter, has expanded nationally with an approach that includes hiring agents as full-time employees. That’s a contrast to most brokerage firms, where agents act as independent contractors. UpNest, on the other hand, uses its platform to let users compare fees from outside agents who work with a variety of different brokerages.

Clever does not employ agents directly but partners with agents from both national brands and independent companies. Part of its business model is to relieve its “partner agents” of the cost of acquiring customers, and to boost their profiles in the areas where they do business. “Because we save them on the cost, they’re willing to discount their fee and keep the service the same,” Mizes says. “If Clever is sending you an extra 20 listings a year, that’s a lot of signs in yards.”

Mather, for her part, says she was impressed by the agent she found through Clever. Despite the discounted commission, her agent responded quickly to her calls and shepherded the transaction through to a smooth closing. “He turned out to be awesome, just a real go-getter,” Mather says. “You would think I was paying him a whole lot more than 1 percent.”

Discount broker commissions

To stick with the same examples, Clever home sellers pay a listing fee of 1.5 percent of the home’s sale price. With Redfin, the listing fee is also 1.5 percent for those who are just selling their home, and if you both sell and buy a home through them, the fee drops to 1 percent.

Of course, the buyer’s agent must get paid, too — and the rules around who pays them are currently in flux. The way commission fees work is set to change starting in August 2024, thanks to a federal lawsuit settlement involving the National Association of Realtors.

While it has long been considered standard for the home seller to cover the commission fees for both agents involved in the transaction, homebuyers may now have to pay their own agents directly. Who pays, and how much, will differ depending on the details of your deal — so even if you pay just 1.5 percent to your own agent, you may have to pay your buyer’s agent as well, which means 1.5 percent won’t be your commission total. Make sure you’re clear on what your discount covers, and what your total commission bill will be.

Discount broker pros and cons

Pros

• Commission savings: Even if you have to pay your buyer’s agent as well, you’ll still save money on the commission for your own agent.
• No extra expenses: Discount brokers allow you to get what you need from an agent — for example, a professional MLS listing and help with contract negotiations — without paying for bells and whistles you don’t want.
• Comparison shopping: There are multiple options available for choosing a discount broker, so you can shop around and compare rates and services before committing to someone. This can help you feel like you’re getting the best deal possible.

Cons

• Potential for lower level of service: Sharon Mather had a good experience with her discount broker, but all agents may not be as attentive as hers when they’re working for a discounted fee. And the person who charges the least may not be the person who knows the most about your local market.
• Potential for less personal attention: Some agents who work for lower rates make up for it with higher volume. If your agent is juggling many, many clients at once, getting back to you promptly may not be their top priority.
• Potential for more work: Make sure you understand exactly what services are included in your discount broker’s fee, and what is not. You may find that you need to do more tasks on your own than is worth it for the savings.

Bottom line

A discount broker, or a real estate agent who charges a lower-than-usual fee, can be a good, money-saving choice for some sellers. But do your research first: Make sure you understand how much you’ll be paying in total (for the entire transaction, not just for your agent specifically), and exactly what that money will buy you in terms of services provided. Most agents who agree to represent you will do their best on your behalf, but some might deliver subpar service in exchange for their discounted rate.