DROdio Real Estate

Sometimes we have clients ask us if we offer rebates. The answer to this question is more complex than you might expect. Here's a whitepaper from our broker on the topic:

When I started doing real estate (I was just an agent at this point, not a broker), I'd give a rebate to anyone who would give me business, because I had no experience in the industry, and the market was such that home prices couldn't really be negotiated - buyers were just lucky to get the house because there was so much demand. But once I got really good at what I did, and I started being able to negotiate big discounts for buyers, or keep them from making expensive mistakes, I realized that my value was much greater when I didn't give a rebate than when I did.  For example, I was able to ratify a contract with one client for $124k below the asking price (the house was listed at $849k, we ratified the contract at $725k). There's so much more value in a $124k negotiated discount than a rebate. In fact, giving a rebate would be a disservice to my client, because if I gave a rebate, I wouldn't be able to spend the time on the transaction to negotiate the other terms.

That's the main point here: Rebates can be "expensive savings". Here's why: It's simple economics.  Realtors have two things to offer their clients: Time, and expertise. Anytime a firm offers you a rebate, they either: A) Won't be able to spend as much time with you on the transaction, or B) Won't have the expertise & knowledge to guide you through the transaction and avoid pitfalls. (and sometimes you'll get both - an inexperienced agent with lots of time and no expertise!) When you focus on getting a rebate, you will always be giving one of those two things up (sometimes you give up both if the firm isn't very good).

If I (or any agent) were to give you a rebate, I wouldn't be able to spend as much time focusing on your needs, which means that while I might be able to serve you in the "basics" of the transaction, I won't be able to spend the time ensuring you don't make expensive mistakes.  You might ask yourself, "why don't I just use another agent who would have the time to give me a rebate?", and that would be a fair question, except for one thing:  If that agent has the time to give rebates, what is he doing wrong in his business that he's not occupied helping other clients?  How much transaction volume does he really do?  Is he really in tune with the market?  Any experienced, well established agent will always have clients he's working with at any given point of time.  If the agent has a lot of free time, that should be a sign that you're giving up "B" above - the knowledge & expertise.  There's no way around it - when you ask for a rebate, the agent will either not be able to spend as much time on your transaction or not have the necessary expertise to negotiate on your behalf, period.  It's like trying to freeze ice at 33 degrees; no matter how hard you try, you just can't get around this fact.

The strange thing about real estate is that one single mistake can cost you many thousands of dollars. If you miss one item in a home inspection, a roof problem, it can cost you $5,000+ to fix. Alternately, putting a contract together the wrong way could cost you $20,000 (and possibly much more). Not negotiating the best deal could also cost you much more than you would save by getting a rebate.

Here is a good example of a typical situation: A buyer put a property under contract and we did a home inspection on the property. If we had not put the time into the transaction to really negotiate a strong inspection, the buyers would have ended up in bad situation where they would have accepted a property in "as-is" condition after the contract ratification. Instead, we were able to not only negotiate the "as-is" clause out of the contract, but we were able to get the seller to fix all the major items and give a $3,000 credit to the buyers.Imagine yourself in the same situation in this example: You either decide to work with a firm where you get a rebate, but have to take a house in as-is condition - a stipulation that could cost you tens of thousands of dollars, or don't take a rebate and have us spend the time & expertise on you to ensure you get a stellar result from your transaction. The choice is yours! We think the decision is obvious.Just remember that a rebate always requires a compromise in either an agent's time commitment or level of expertise, or both.

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This entry was posted on Monday, July 30th, 2007 at 11:40 am and was filed under drodio.com. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.