Brokers and real estate agents can be a great help when selling a house, but their services can come with a hefty fee. This fee is typically a commission of the sale price that is divided between the listing and buyer’s agents. In the past, this is how it was always done. In today’s real estate market, there is an alternative. Flat fee brokerages and agents. But what is a flat fee real estate broker? What are the advantages and disadvantages of using one? This article will answer those questions, and hopefully more.
Definition of flat fee real estate broker
A flat fee real estate broker is an alternative to the traditional commission based model when selling a home. The flat fee model means the listing broker will charge a fixed rate for their services, rather than a commission. This type of service can provide a cost effective solution for home sellers who want to reduce their overall expenses.
Clearly this is a distinct benefit of using a flat fee real estate broker. However, the flat fee model is not without its flaws. It is important to understand the advantages and disadvantages when choosing which type of brokerage to use.
Advantages of using a flat fee real estate broker
You can save money
Using the flat fee model as opposed to a commission based structure has the potential to save you money. Sometimes this can equate to thousands of dollars in savings.
The traditional commission structure is based off of a percentage of the sale price of the home. Not what you’re profiting from the sale, but the price the home sells for. Typically this is anywhere from 2.5%-3% of the sale price. As an example, if your home sells for $275,000, at 2.5% commission that’s $6,875 to the brokerage. That’s no small amount of money that is coming straight out of your profit. If you happen to be selling a luxury home, these numbers can be far greater. That is why many Realtors invest in real estate SEO to get a home sold.
The cost of a flat fee real estate broker can vary significantly. Some may charge the same flat fee to list a house of any price. Others may scale their fee dependent on the asking price or other factors. For this example, we’ll say that you’ve chosen a flat fee broker that charges $3,000 to list your home. That’s a savings of $3,875. If they happen to charge $5,000, that’s still $1,875 in savings.
You know what you are paying upfront
When you choose a flat fee real estate broker, you’ll have a set price to pay. This allows a home seller to create a more accurate budget of the costs they’ll incur.
If you’re purchasing another home, then you’ll have a better understanding of how much you’ll have for the down payment. It can also help you plan for all the other expenses associated with selling a home. Things like attorney fees, filing and notary fees, title company fees, and any taxes you may have to pay.
Additionally, you can budget better for moving expenses. The cost of hiring movers, furniture, and temporary housing if needed are just a few.
The market dictates the price
So what does that mean exactly? When working with a traditional brokerage, in order for them to get paid your home needs to sell. While at surface value that may seem like a good thing, it’s not always the case.
Under the commission based model, a brokerage may not always do what’s best for the seller. They may be more likely to pressure you into taking a lower offer than you anticipated to ensure a quick sale. On the flip side of that, they overprice your property for a larger payout. This can cause your house to sit on the market for longer than it should. Other comparable homes that are priced correctly may hit the market later, and sell before your home.
With a flat fee brokerage, chances are your house will be priced properly when it hits the market. There’s no rush for them to sell it and get paid, but also no reason to inflate the selling price for a larger payday.
Disadvantages of using a flat fee real estate broker
Lack of motivation to sell your home
One of the biggest drawbacks to using the flat fee model is the level of service they’ll provide. In some instances, a flat fee broker will simply list your home on the MLS, and that’s it. They’ve done their part. The house is officially on the market, so let’s sit back and wait for the offers to roll in. They already know what they’re getting out of it, or they’ve already collected their money.
Selling a home takes effort. Whether on the part of the agent handling your listing, or on your part. Someone has to do the work. You may be fortunate enough to get an offer with little to no effort, but chances are, it’s not a probability.
Proper marketing, open houses, and showings are all part of selling a home. It’s not to say that flat fee real estate brokers don’t offer this. For some it’s part of the initial price. For others, they’ll be more than willing to handle those steps, for an additional fee.
Less profit
While the chance of saving money has already been discussed, sometimes it’s just the opposite. You can run the risk of a house being underpriced, just as with the commission model. But why would that happen?
A flat fee real estate broker has less of a reason for your house to sell at top dollar. They may not be as willing to negotiate a higher price on your behalf. It doesn’t matter to them what your house sells for. It has no effect on what they are going to make from the sale. The lower the price, the faster it sells, and that’s one less thing on their plate.
It goes without saying that the sale price of your property directly correlates to the amount of profit you’ll see. All the budgeting you’ve done thinking you’ve saved money on the sale of your home could be out the window.
Conclusion
Hopefully this has been helpful in explaining what a flat fee real estate broker is, and the pros and cons of using one. It’s worth noting that these are not your only options.
There is another form of discount real estate broker out there that may suit your needs better than these. Sort of a best of both worlds scenario.
No matter what type of brokerage you wind up going with, make sure to weigh out your options. It’ll pay off in the end.