Find a real estate broker without going
broke.
By Selena Maranjian
Motley Fool
Updated: 9:27 a.m. ET Dec. 7, 2005
You've heard of discount brokerages on Wall Street. But there's another
kind of low-cost broker a little closer to home: discount real estate
agents.
Longtime Fools understand the difference between traditional
full-service brokerages (which we used to refer to as "full-price"
brokerages) and discount brokerages. The former generally charges a lot
while hand-holding its clients with personal investing advice. The
latter leaves decision-making to the customer, but offers very
inexpensive rates. The distinctions between them have blurred a little
in recent years; full-service fees have fallen, and many discounters now
offer rich stock-research information. Full-service brokerages include
Merrill Lynch(NYSE: MER) and Morgan Stanley(NYSE: MWD), while discount
brokerages include Fidelity, Charles Schwab(NYSE: SCH),
Ameritrade(Nasdaq: AMTD), E*Trade(NYSE: ET), and Toronto-Dominion's
(NYSE: TD) TD Waterhouse (which is being gobbled up by Ameritrade).
Discount real estate agents, like their stock market counterparts, offer
lower fees for simpler services. You probably know that real estate
agents typically earn 5% to 6% when a home is sold. That rate is now
being undercut by discounters, who sometimes take commissions at 3% or
less.
How can this be happening? Well, think of it in classic economic terms.
There are only so many homes that get sold in a given year. But in the
past few years, the number of real estate agents has surged. (I'll bet
you have at least one friend who became an agent recently, perhaps
switching careers. How many of your friends have switched to nursing,
teaching, or software programming?) According to an article in the
Minneapolis-St. Paul Star Tribune, in the past five years the
Minneapolis Area Association of Realtors has grown from 5,400 members to
10,000.
This kind of explosion fuels competition, and one way agents can fight
it out is by undercutting each other's profits. This can result in big
savings for us homebuyers and home sellers. (Just remember that you
should never select an agent on commission alone -- their skills are far
more important. Agent A might charge more than B, but might sell your
home for more than B would, enough to cover the difference in the
commission.)
Discount real estate agents can sometimes afford to offer lower rates
because they let the client do some of the work, such as researching
homes online. This trade-off is considered well worth it by many
clients, but discounters are getting a lot of flak from their
traditional counterparts. Some states are restricting how low agents can
set their fees, which rarely benefits their clients.
If you're looking to buy or sell a home, educate yourself before you get
too far into the process. Spend some time in our Home Center, which
features lots of money-saving tips and even some special mortgage rates.
You might also want to check out these articles:
· Buying a House is Easy!
· So You Want to Be a Landlord?
· Make Money as a Landlord
· A Mover's Survival Kit
· 10 Things to Know About Mortgages
· 10 Home Enhancement Tips
Charles Schwab is a Motley Fool Stock Advisorpick.
Longtime Fool contributor Selena Maranjian does not own shares of any
companies mentioned in this article. She recently discovered that
there's a sink that bears her name.
© 2005 MSNBC.com
URL:
http://msnbc.msn.com/id/10365015/
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