Many homeowners are surprised to find out how costly the process of selling a home can be. Aside from making necessary repairs to prepare the property for listing, there are also closing costs and real estate agent commissions to factor in.
Typically, the agent commission is the largest expense during a home sale. Depending on the structure of the commission agreement, sellers may wind up paying 2% to 6% of the home’s sale price at closing, which can translate to tens of thousands of dollars.
Rather than give away a big chunk of your home’s equity, some sellers are exploring flat rate listings. While a flat rate commission can save a lot of money, there are some major factors to consider before taking this route.
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What Is a Flat Rate Listing?
“A flat rate listing is where a seller pays a set dollar amount to a real estate brokerage for helping sell the home, instead of a portion of the sales price,” says Robert Arnold, managing broker of Sand Dollar Realty Group in Altamonte Springs, Florida.
Traditionally, a seller will partner with a full-service brokerage, paying 2% to 6% of the final sales price, which may or may not be split with the buyer’s agent. After the National Association of Realtors last year settled a series of class-action lawsuits about its compensation rules, sellers now have the option to decide whether to pay a buyer’s commission.
If they choose to do so, in hopes of attracting more buyers, they can be stuck paying up to 6% of the sale price to cover both the buyer’s and seller’s commissions.
While commission rates are always negotiable, some sellers want to reduce this cost, so they work with a real estate agent on a fixed-fee structure.
“The process and the service are the same whether it’s a $300,000 or $3,000,000 home, so why pay more just because the home or asset is worth more?” says Greg Kurzner, the strategic advisor for Real Estate Bees in Atlanta.
What’s Provided in a Flat Rate Commission Agreement
What’s involved in a flat rate listing varies widely. Traditionally, a full-service brokerage helps you from the beginning to the end of the transaction in exchange for their commission. They do things like:
— Recommend a listing price based on a comparative market analysis
— Market the property, including placing it in a multiple listing service (MLS) and putting up signs
— Provide showing access and hold open houses if necessary
— Negotiate and help facilitate the closing
Some brokerages still provide these full services despite being paid a flat rate. Others will have an a la carte menu, where the sellers can select the services they want from a package, which ultimately determines the flat fee they pay.
“I’ve seen some charge more based on the house size or its price point, but the packages can also be priced differently based on what you are getting,” says Arnold. Maybe you want the brokerage to hire a professional photographer for you, and you are willing to pay a few hundred dollars extra for that service. “If you want a Matador3D tour, for example, the brokerage may charge a few hundred dollars for that,” says Kurzner.
Kurzner’s brokerage takes a full-service approach, charging a flat rate fee of $10,000 plus the MLS fee, which varies depending on the home price. In some cases, this is cheaper than a traditional commission structure, but not always.
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Flat Rate Listing vs. Limited Service Listing
Flat rate listings can easily be confused with limited service listings, but they aren’t the same thing.
Limited service listings put your home on the MLS and associated real estate websites such as Zillow and Realtor.com, but “it’s more like a for sale by owner,” says Arnold.
The owner needs to provide listing photos, write a property description, set the list price, coordinate showings and negotiate with the buyer or buyer’s agent. Because the owner is doing most of the work, the fee is a lot less — around $400-$900.
Some brokerages offer limited service listings or sellers can use nationwide providers, like Homerise.com. Just be aware that as the name suggests, these services are limited. They may restrict the number of listing photos or how frequently you can change the listing.
For example, if you want to update the description, you might only be able to do that once throughout the listing, explains Arnold. However, most do offer a la carte services like professional photos, additional changes to the listing or putting a sign in your yard for an extra fee.
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Pros and Cons of a Flat Rate or Limited Service Sales Agreement
One of the biggest pros of working with a real estate agent on a flat rate agreement is that you can potentially save a lot of money.
If your home will sell for an estimated $500,000 and you agreed to pay a 5% commission, splitting 2.5% to each agent, your total real estate commission costs would be around $25,000. If you found a full-service brokerage that charges $10,000, you would save roughly $15,000 while still receiving the same service.
Having a fixed-rate fee also allows you to budget upfront. You know how much you will have to pay from the sale, which makes negotiating easier.
If the flat rate structure is broken up into a package, you may have to do more work or pay extra to get services you want or need down the line. If you do a limited service agreement, you’re forfeiting an agent’s expertise, marketing experience and legal knowledge of sales procedures and disclosures.
While most limited service agreements will provide you with the necessary contracts, it’s up to you to make sure you are following your state’s guidelines during the process, which can be a big liability.
Pros of Flat Rate or Limited Service Sales Agreements | Cons of Flat Rate or Limited Service Sales Agreements |
— With a fixed-rate fee, you know what you’re paying upfront. — They can potentially save you money compared with a commission-based structure. — You may receive the same services for a cheaper price. |
— You may receive fewer services in exchange for cost savings. — They don’t always save money compared with a commission-based structure. — It may leave you doing more work during the sale and thus open to more liability. |
Is a Flat Rate or Limited Service Sales Agreement a Good Idea?
Super hot real estate markets, where it takes little effort to sell a home, favor a flat rate or limited service structure over commission-based fees. During the pandemic, for example, homes in many areas were only on the market for a few days. Yet sellers still had to pay the traditional 3% to 6% commission. Using the flat rate structure during this time could have saved a lot of sellers money.
Arnold says most of the clients he works with in a flat rate or limited service sales agreement today are experienced investors or real estate professionals from other states who don’t have access to the local MLS. “Since the MLS is segmented by counties, you might use a limited listing service to gain access to a different MLS,” Arnold says.
A flat rate or limited service sales agreement may be a good idea if:
— The flat rate fee would be less than the commission you would pay based on your home’s value.
— You are comfortable with the services you are receiving for the flat rate fee.
— You are OK with potentially doing more work in the sale of the home if you are not receiving full services.
— You have real estate sales experience and are confident performing the services not provided in this fee structure.
— It’s a super hot seller’s market and it takes little effort to sell a home.
A flat rate or limited service agreement may not be a good idea if:
— The flat rate fee would be more than the commission you would pay based on your home’s value.
— You are a newer seller who wants or needs support throughout the sale process.
— It’s a tough market and takes more effort and marketing knowledge to sell houses.
— You don’t have the time or knowledge to properly price, show or negotiate the sale.
Ultimately, you have to decide if a flat rate or limited service sales agreement is a good move. If you shop around and find a full-service brokerage that still offers assistance throughout the whole process, you may receive notable savings from this fee structure. However, there are instances where you could pay more.
Do the math for what a commission would cost you based on the likely sales price of your home compared to the fixed-rate fee a local brokerage would charge you. Then consider what you receive in both scenarios to make sure you’re OK with giving up some services for cost savings.
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What Are Flat Rate Listings and Are They a Good Idea? originally appeared on usnews.com