Why a Flat Fee Real Estate Broker Probably Ain’t Worth It
Home is a place to put down roots, raise a family and build a community, but in reality it is not because people are quite restless. First homes are often considered “starter” homes, purchased with the implicit intention of living there for a relatively short time, and the average homeowner lives in their home for about 10 years before selling it and moving to a new one. This means they pay large commissions to realtors.
If you’ve only ever bought a home, you may not have thought about these fees because they’re usually paid by the seller, but they can add up. Typical real estate commissions are 5–6% of the home’s sales price (the average commission in 2023 was 5.46% ) and are split between the two agents involved. For example, if you sell your home for $250,000, the 5.46% commission is $13,650 of your profit paid to the buyer’s agent and your agent. To some extent, this is negotiable—agents may be willing to take less—but many sellers get watery-eyed at the amount of money being cut from their selling price. This haircut may encourage home sellers to seek alternative options, such as a flat-fee broker.
Fixed fee
A flat fee realtor is exactly what it sounds like: instead of taking a percentage of the sale price as a commission, they charge a fixed down payment, usually between $3,000 and $5,000 , although this varies by region and property value. house.
At first glance, this is a lot. Let’s say you hire a $3,000 flat-fee real estate broker to sell your house for $250,000. Instead of $13,650, you now pay $9,825 in commissions ($3k to your agent and half of the 5.46% still owed to the buyer’s agent), saving about $4k. This is very good! And if your home is worth more, your savings could be much more significant. So why shouldn’t everyone use a flat fee service to sell their home? The answer is simple: you probably won’t save $4,000 on the deal.
Flaws
To be clear: you can save that much money, or at least a significant amount of money. But there are many reasons why it is not as easy as it seems:
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Another agent. The first thing to remember is that you are still paying the buyer’s agent’s commission. In our example of a $250,000 home, that’s close to $7,000. And since that fee is still tied to the sale price of your home, if you sell it for more than expected—say, $275,000—after a bidding war, that fee will simply go up. You’ll still save money on your end because your agent’s fee won’t increase, but it’s important to remember that your overall costs may increase even with a flat fee on your end.
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Additions. When hiring flat fee services, you need to know what services they provide. Many flat fee agents will only list your home on the Multiple Listing Service (MLS) and do a little marketing, leaving the rest for you to either do yourself or pay out of pocket. These costs may include things like photography, advertising the home with printed signs or mailers, organizing open houses, event planning services, and cleaning.
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Duty. Real estate agents typically handle many of the legal issues when selling a home, but fixed-fee agents may not offer these services or may charge extra for them. If you are not familiar with the laws in your area and do not know all the information you must disclose, forms you must fill out, permits, surveys and other documents you must provide, you could find yourself liable for some costly consequences. You will also need to properly prepare the deed.
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Lower selling price. A fixed price home is essentially a for sale by owner (FSBO) home with extra steps because you do most of the work. And FSBO homes typically sell for much less than homes sold through agents— a lot less. The average sale price of FSBO homes is $310,000 , while the average sale price of homes with a full-service agent is $405,000. If you save $7,000 in commissions but lose $100,000 on the sale price, you’ve actually saved nothing. Another factor is the agent’s motivation: A traditional agent has a clear motivation to sell your home for the highest possible price: their fee increases. There is little reason for a fixed fee agent to make any effort to get a better price since his fee remains the same and has already been paid.
While it’s certainly possible to save significant money by using a flat-fee real estate agent, to do so you need to know exactly what you’re getting in exchange for that fee and how much you’ll have to pay out of pocket to do the rest. Additionally, there are non-monetary costs in terms of your time and labor since you will be the one doing everything that your flat fee agent won’t do. Chances are, if you add it all up, you won’t save much at all.