“You get what you pay for,” and “luxury agent” have been cliches in the real estate industry for a long time. The problem is that this statement has been used to silence conversation instead of encouraging a true examination of “What am I paying for, and is it worth the price?”
To make for an easy and comprehensible read, let’s identify terms. Many agents push themselves as “luxury agents,” but for this, we will have high-fee and lower-fee agents because if you are charging a higher fee, you should be providing a luxury service. To properly value something, the best metrics should be quality outcomes and customer service. At the end of the day, these are the only two metrics worth talking about: what you are promised and what you are paying for.
To determine whether people are truly getting what they are paying for, we will use actual market data from our home office in New Orleans, LA. This article will contain speculation and opinions, but those speculations will be based on actual market facts. We will directly compare the numerical outcomes when someone uses a discount agent with 1 Percent Lists to the top 10 brokerages in that market.
Do higher fee agents sell homes faster and for a higher net return to clients, bearing in mind they need to sell properties for at least 2 or 3% more just to cover the higher cost of the agent?
First, let’s talk about outcomes:
Based on the past 12 months (2024) of market data in New Orleans, the home market of 1 Percent Lists, the answer is a resounding no. The top 10 brokerages sold houses for an average sold price to list price (what it was listed for vs. what it sold for) of 92.6%, compared to an average of 94.3% for agents working for 1 Percent Lists.
Assuming the typical agent charges 2.75% (the Louisiana average) to list a home, the typical client saves/nets 7,738 dollars on the sale of their home by using 1 Percent Lists compared to the brokerages in the top 10 in sales volume in the Greater New Orleans market.
So the real question is why a “discount” agent sells for a higher price (negotiating less off the price) for their clients than a higher-fee agent. Here are possible reasons, but they are pure speculation. Maybe…..
Higher-priced agents list properties at way too high a price because they overpromise a result that they cannot deliver, which leads to more negotiation. Or maybe…..
Discount agents are underpricing homes. But I believe most likely…
It’s easier to price your home appropriately when you aren’t paying a considerable fee to sell it.
Now, let’s talk about days on the market. How long does it take to go under contract?:
Do agents with higher fees sell homes faster due to superior marketing?
This stat refers to how long it takes for your home to go under contract when listed with a particular brokerage. The argument for the higher-fee brokerages is that they do more marketing and thus sell homes faster for more money. We have already seen that the “more money” number isn’t accurate, but they should be selling homes faster with all the added marketing they claim to do. But they aren’t……
The top 10 brokerages in the same market in the same time frame took an average of 62.3 days to sell a home compared to 58.5 days with the average 1 Percent Lists agent.
With higher-fee agents claiming to do more marketing, you would think they would sell faster, but the opposite is true. The question is why.
Do discount brokerages who charge less spend more on marketing homes than their higher-price counterparts? Highly unlikely….
Is it easier to price your home appropriately when paying lower real estate fees? Absolutely….
Is it easier to negotiate and sell a home faster if you are paying lower fees? Absolutely….
Is it easier to offer buyer incentives like closing costs or interest rate reductions to get homes sold if you are saving money in real estate fees? Absolutely…
So what would explain all this? You need to understand how people shop and how houses are sold. The National Association of Realtors did a Real Estate in the Digital Age study, which found that 99% of younger generations and 97% of baby boomers shop online when looking to move. If you had to move today, what would be your first move? Are you calling Suzy the top producer or going straight to the internet? The “marketing” done by luxury agents is replaced by the internet, just like everything else. This starts to explain it but doesn’t fully explain it until you see it from the buyer’s shoes…..
To do that, go to any non-affiliated (not owned by a real estate brokerage) real estate website like Zillow, click “BUY” to shop for a home, and click on any home. In evident and bold places, you can click to speak to an agent (how Zillow makes money), get a loan, get information, or see an estimate of the property’s value (often not very accurate). The most hidden information on that page is the listing agent’s information because they don’t want you to talk to the listing agent. They get paid by connecting you to one of their buyer’s agents.
Every other real estate website has the same business model: selling leads to agents. Now, if you manage to find out who the listing agent is, the odds are you will not know that agent. You won’t know if they are the #1 luxury agent in town, a brand new agent, or a discount agent, even if you live there. I bet you can’t tell me who the top producers are right now in Kansas City, Dallas, Nashville, or anywhere else, even if you live there, but especially if you don’t. So, as a buyer, you won’t know and won’t care who that listing agent is. But let’s assume for a moment you did……
As a buyer, if you knew it was the #1 top luxury agent in a market, would that influence the offer you make? Are you willing to pay more because the seller hired a more expensive agent? If you drive by a home and see a luxury brokerage sign, does it affect how well that home looks and feels to you and your family? Does it make the house any more or any less appealing to you? Absolutely not.
In fact, over 9 out of 10 real estate deals involve two different real estate agents, typically from different brokerages, which means it is illegal for your agent to speak with the other party. In fact, they are legally required to talk to the other agent to relay information to the other party. As a seller, that means your luxury agent has absolutely no influence over the thoughts and actions of that home buyer. They might be desperate for a home and make a fantastic offer, or they might be the most formidable negotiator who writes you the worst lowball offer and then rakes you over the coals on inspections. Your agent cannot influence that party to which they are legally required to have ZERO access. So, as a buyer, what matters to you?
What kind of deal am I getting on this house?
That is all that matters. The simple reality – it is much easier to advertise a better deal and negotiate a better one when fewer fees are tied to the agreement. Think about it this way: as a buyer’s agent, what excites you about buying a particular home?
If the seller hired a higher-fee agent as a buyer you would have:
- Luxury listing agent at a boutique brokerage (that you won’t speak to)
- Open houses every weekend
- Magazine and print marketing
- Broker tours
On the other hand, if the seller hired a more affordable agent, they could save money and offer you the following:
- Interest rate reduction
- Closing costs paid/assistance
- Renovation allowance
- New air conditioner
- Several thousand dollars off the sales price
On the one hand, you could get your closing costs paid or have a listing agent do an open house so you can walk right in on a Saturday afternoon instead of booking an appointment. You could read about it in a real estate magazine or get an interest rate reduction, closing costs paid, a renovation allowance, or a better price. You could replace that air conditioner on its last legs as a seller or get a broker tour, open house, and print marketing. Put yourselves in the shoes of a buyer. Which one would you choose? You would select the one that benefits you. Still, you didn’t get to it, making the deal more painful for all parties involved because everyone’s bottom line is stressed by a higher commission with no obvious benefit.
This is why homes sell faster and for more when fees are lower. It’s simply a lot easier for all parties to race over a finish line when you aren’t pushing a wheelbarrow full of concrete with an anchor around your neck. An unwillingness to evolve to a lower fee model for real estate agents and brokers caused the NAR lawsuits and what is stressing buyers and sellers. Everyone else in a real estate transaction negotiates their fees.
Title companies negotiate their costs to make deals work or keep deals. Have you ever heard the catchy jingle “When banks compete, you win?” I’ve never heard that one say about luxury real estate agents. So next time you are about to sign on the dotted line, ask to see data. Don’t let them tell you they are real estate deities due to their higher fees. Make them show you market data and prove it, and don’t be shocked when they cannot. Make sure you get what you pay for.
