Thursday, February 15, 2007

Flat rate real estate brokers

The giant real estate industry is fighting a losing battle against a new breed of real estate sales people: the flat rate brokers.

Flat rate brokers will list your home for one low price, sometimes as low as $399. These agents usually set a up a contract with you where you agree to pay any agent 2.5% of the selling price at the time of the closing. Why? Because there is no incentive for agents to show your home without making some money. The 2.5% rate is the going rate around the country.

Let's assume that the best way to sell your home is through a Multiple Listing Service. Statistics kept by the real estate industry confirm this as a fact. Let's say you sell your home for $300,000. The full commission broker will often insist on a 6% sales commission. This means, of course, that the broker(s) will pocket $18,000 as their commission. Usually the selling broker gets half and the listing broker gets half. So, in this case, you would actually be selling your house for $282,000 (300,000 minus 18,000). This does not include legal, insurance and other fees associated with selling a house.

Flat rate brokers are betting that you will want to list with them to save a bundle of money. They work on listing volume rather than actual sales. This is not to say they do not have your best interest at heart because they know you will probably be purchasing another home. The chances of using your flat rate broker are enhanced if you sell your house through him or her.

Other myths are surfacing. Statistics show that the number of homes sold through "Open House" weekends is a dismal 2% and for newspaper ads a whopping 5%. Home guides sell 1%. The source for these National Association of Realtors 2006 Homebuyers and Sellers Profile (75 page report)

How much can you save? The result is an eye-opener.

Let's assume your flat rate broker charges you $500. (This is an up-front fee by the way) If you pay the selling broker 2.5% of the selling price ($7,500) and your flat fee broker $500, then it is easy to see that your total fees are $8,000. This is a savings of $10,000 on the transaction. I don't know about you, but for me this is more than chump change.

Full-commission brokers are attacking the flat rate brokers with good reason. They are cutting into their total industry commissions heavily. The standard brokers also see the writing on the wall because they, like you now, know the simple fact that most homes get sold by agents who knew nothing about your house before it was listed in the MLS. So, no matter how much huffing and puffing the full-commission brokers yell about how their service makes a difference, statistics prove otherwise.

I"ve sold a few homes that we lived in over the years and I will state without blushing that my listing agents were generally useless as far as selling my houses. They may have tried, but you could have fooled me. All four of my previous homes were sold by people who I never met before they showed the houses to their prospects.

Be aware that some flat rate brokers will provide you with as much or more service than the full service brokers. My good friend, Bill Brynelsen, lives in Spring Grove, Illinois. This is the next town over from my village of Richmond. Bill was a pioneer in the flat rate real estate business. He started his agency in 2004. At that time flat rate brokers were treated as hostile enemies by real estate salespeople and the public alike.

Times have changed. Bill provides signs and gives useful information to his clients during the selling process. He also attends the closings for moral support. That's more than being the nice guy he is. That's good business.


  1. Your spot on.... Brokers and agents that think they can hang onto percentage listings are in complete denial and will be pushed aside....If one wants to stay in the game of real estate then they better jump on board the flat rate train...

    My new marketing firm is up an running....

  2. Hi all,

    Flat Fee MLS generally refers to the practice in the real estate industry of a seller entering into an "à la carte service agreement" with a real estate broker who accepts a flat fee rather than a percentage of the sale price for the listing side of the transaction. The buyer's broker is still typically offered a percentage though that could be a flat fee as well. Thanks for sharing it.......

    For Sale By Owner