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. A Flat Fee MLS brokerage typically unbundles the services a traditional real estate brokerage offers and lists the property for sale in the local Multiple Listing Service (MLS) à la carte without requiring the seller to use its services for valuation assistance, negotiating, transaction management and showing accompaniment.
The real estate brokerage industry is evolving to accommodate modern consumer demands. The Department of Justice, in a letter to Governor Matt Blunt of Missouri dated 23 May 2005 provides a summary of these changes. The reference cited for this excerpt is a letter written by the DOJ to encourage Governor Blunt to veto a bill that, according to the DOJ, would have reduced consumer’s options and increased the cost of selling real estate in Missouri. The excerpt follows:
“Traditionally, real estate professionals have performed virtually all services relating to the sale of a home. The key tasks involved in selling a house include marketing it, negotiating with potential buyers, and closing the transaction. Marketing includes listing the property in the local multiple listing service (“MLS”), placing advertisements in local media and on the Internet, and conducting open houses. Contract negotiation services might include providing advice on pricing, home inspections, or other contractual terms. For these efforts, the real estate professionals are typically paid a commission based on a percentage of the sales price of the home.
“It is becoming increasingly common for home sellers to buy some, but not all, of the traditional brokerage services. For example, some sellers might want help advertising their homes, but want to negotiate the sales price themselves. Such consumers might prefer to pay a real estate professional only for the service of listing their homes in the local MLS and placing other advertisements. Other consumers might find a buyer without assistance, but would like to hire a real estate professional to assist them with the negotiation of the sales price or with the paperwork required to close the transaction. The marketplace is evolving in response to these consumers. Real estate professionals who are willing to provide only those services a home seller wants have emerged in Missouri and throughout the country. These “fee-for-service” or “menu-driven” business models are currently legal under Missouri law and typically enable consumers to save thousands of dollars because the consumers pay only for those services they want.”
In a flat fee MLS listing, the listing agreement between the real estate broker and the property owner typically requires the broker to enter the property into the MLS and provide other contracted services, with the broker acting as what the traditional industry has coined a “limited service broker”. However, the flat fee industry prefers the term à la carte broker because the services are not limited. Instead freedom of choice is expanded to allow sellers to pick from a menu of services. For example if a seller opts to purchase marketing in an MLS, and other distribution channels only, that does not imply that the listing broker would not have negotiated or offered more services if the seller wanted to pay for those services. In fact many flat fee brokers offer upgraded packages that sellers often contract for. Consequently, the services is not limited but instead custom crafted to the needs and wants of the seller.
Currently there are numerous descriptions used to describe reduced fee and discounted real estate services, some of which are not based on providing limited services. The Department of Justice uses terms such as “nontraditional”, “Fee-For-Service”, and “menu driven”, which are in contrast to “traditional” real estate service(s) offered by a licensed real estate broker to a seller of real estate. It is important that the consumer understand there is not currently any standard terminology for nontraditional real estate services though à la carte is probably the best description.
Within the nontraditional real estate services market, there are multiple programs offered to sellers that share the common objective of saving the consumer money by reducing the overall expense of selling real estate. A “nontraditional service” does not automatically entail “limited service”. For instance, some full-service brokers list properties under a full-service agreement but charge a “flat rate” that is not a percentage of the sales price. This full-service option usually is a discounted full-service listing, but it is different from the “Flat Fee” MLS service which is the subject of this discussion. Until the industry evolves and adopts a standard practice of terminology, both consumers and real estate brokers will continue to experience some confusion over the terminology describing the services being offered. In all circumstances, the consumer should thoroughly understand the services being provided and the manner of compensation for those services.
The flat fee MLS service is radically different from traditional real estate brokerage services. Because every State requires a listing agreement between a real estate broker and property owner, the rapid explosion of flat fee service providers has created a gap in the States developing laws governing flat fee services provided by real estate broker. In most real estate board / MLS systems, there are generally two types of listing agreements, although some Boards allow others. The first and most common is called an “Exclusive Right to Sell” listing, in which the seller will not only pay a commission if their property is sold through their listing broker or another MLS broker (buyers broker), but also if the seller finds their own buyer. In an “Exclusive Right to Sell” listing, the listing broker gets the commission specified in the listing agreement regardless of who actually finds the buyer. The second type of listing agreement is called an “Exclusive Agency” listing agreement. This “Exclusive Agency” is one form of agreement that can be used to allow the seller to market their property “By Owner” and pay zero commission if they are successful in finding their own buyer. It is this “Exclusive Agency” listing agreement that forms the basis for many flat fee service provider’s listing agreements. In essence, Flat Fee MLS listings are a logical progression of reduced-cost selling alternatives to property owners who are comfortable with managing part or all of the selling process, who believe the MLS will effectively “advertise” their property, and who are willing to pay a buyer’s broker a commission.
Listing fees for “flat fee MLS” services cover a wide range, but generally include two components: the flat fee paid to the listing broker, and the commission the property owner agrees to pay a Buyer’s Broker (if there is one). The commission which is normally paid to the “listing” broker is replaced by payment of the flat fee.