Flat Fee.vs Traditional Commission

Flat Fee Real Estate versus Traditional Commission

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, transaction management and showing accompaniment.

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, 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 pay for some, but not all, of the traditional brokerage services. For example, some sellers might want help advertising their homes, but want to retain the right to find a buyer on their own. 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 throughout the country. These ‘Fee-for-Service’ or ‘Flat-Fee’ business models are legal in most states, including Illinois, and typically enable consumers to save thousands of dollars because the consumers pay only for those services they want. That does not imply that additional services are not available. In fact, many flat fee brokers offer upgraded packages consisting of various levels of service. Consequently, the level of service is custom crafted to the needs and wants of the seller.

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 brokers list properties under a full-service agreement, but charge a flat rate that is not a percentage of the sales price. In all circumstances, the consumer should thoroughly understand the services being provided and the manner of compensation for those services.

While the Flat Fee MLS service is radically different from traditional real estate brokerage services, the State still requires a listing agreement to be executed between a real estate broker and the property owner. In most real estate boards / MLS systems, there are generally two types of listing agreements, although some boards allow others. The first, and most commonly used by traditional real estate brokers, is called an “Exclusive Right to Sell” listing. This agreement requires the seller to not only pay a commission if their property is sold through their listing broker or another MLS broker (buyer’s 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 providers’ listing agreements.

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.

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 are willing to pay a buyer’s broker a commission if the broker finds the buyer.