Are Discount Brokers
Too Good to Be True?

Question: A local real-estate broker is advertising that he will list my home and charge a commission of only 1%. Is this legitimate or is it a scam?

Jerry: Times are changing and that affects real estate big time. Today we're seeing a proliferation of discount and fee-for-service brokers. Perhaps the biggest of these is Assist2Sell which claims to list properties for as little as 1% commission at more than 150 offices throughout the country. For this fee, the company says it will provide nearly all the services that a listing broker usually does, including putting a sign in your yard, advertising your property, dealing with prospects and handling all the paperwork.

But it's very important to understand that these companies usually won't list your home on the Multiple Listing Service that brokers use as a clearinghouse. Listing your property on the MLS usually will cost you an additional 3%, the typical buyer's broker's fee. (This portion of the discount broker's fee goes to the agent who finds a buyer for your home.) So for the full-service treatment from one of these brokers, the fee is still around 4%. Of course, this is a significant discount from the 5%, 6% or 7% that traditional agents charge.

If you're considering hiring a discount broker, be sure to get in writing exactly what services the agent will perform. Many discount brokers will only perform limited service, put a sign in front and handle paperwork. You might have to do your own advertising, show the property yourself and negotiate the deal. If you have to do all that, the discount might not end up being much of a bargain after all.

Question: Should a real-estate broker attempt to represent both the buyer and the seller in the same transaction?

Luzomah: The old expression "No man can serve two masters" certainly applies here. In real estate today it's customary for an agent to tell you who he or she is serving. Is it the seller -- as is usually the case with the listing agent -- the buyer, or both?

Dual agency, where the agent claims to be serving both parties, is allowed almost everywhere, provided it's fully disclosed in writing. To me, however, such an arrangement has always been an iffy thing at best. Consider the following situation: A seller's agent overhears the buyers saying they will pay more for the house than they are currently offering. Because this agent represents only the seller, it's an ethical requirement that he or she tell the seller this important information that weakens the buyer's negotiating position.

On the other hand, a buyer's agent is similarly bound to reveal to the buyer if he or she overhears the sellers say they will take less than the home is listed for. An agent has a fiduciary requirement to always do what's in his or her client's best interests.

Given these requirements, what does a dual agent do when he or she hears either the sellers say they will accept less or the buyers that they will pay more? Keep silent? Tell one and then explain to the other why he or she revealed this information? I don't think a dual agent can adequately serve either the buyer or the seller.

If I were a buyer, I'd insist that my agent serve only me -- and put the terms of the arrangement in writing.

-- Mr. Irwin has more than 25 years' experience as a Los Angeles-area real-estate broker. He is the author of more than two dozen books about real estate and is recognized as one of the most knowledgeable writers in the real-estate field. Mr. Irwin's most recent book is "Tips and Traps When Renovating Your Home," (McGraw-Hill, 2000).

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