Real estate transactions are often complicated and require a certain level of expertise. This is why hiring a qualified, trusted real estate agent to sell your home is a must. In the past, all that knowledge and help they offered came with a hefty fee. Usually a commission on the sale price of the home.
In today’s real estate market, there are alternatives. In recent years both flat fee and discount real estate brokers have seen a rise in popularity. What are these new disruptors in the real estate industry? What are the benefits and drawbacks of using them? These are the questions we’ll answer for you here.
Definitions of flat fee and discount real estate brokers
Flat fee real estate brokers
Flat fee real estate brokers are an alternative to the traditional commission-based model for selling a house. Flat fee means that the listing broker will not charge a commission but will instead charge a flat rate to list your home.
Discount real estate brokers
Discount real estate brokers use the commission model, but at a discounted rate. The typical commission based broker charges 2.5%-3% of the property’s sale price. A discount real estate broker will charge as little as 1%.
Benefits of flat fee vs discount real estate brokers
Flat fee real estate brokers – The Pros
- It’s possible to save money
Flat fee models can be more cost-effective than traditional commission structures. This can sometimes translate into thousands of dollars in savings.
Traditional commissions are based on a percentage of the selling price of the home. The home’s selling price is what you are making, not the amount of profit. This commission is usually between 2.5% and 3% of the sale price. For example, if your house sells for $300,000 at 2.5% commission, that’s $7,500 to the brokerage. For more information, we have written a full breakdown of how real estate commission works.
A flat fee real estate broker’s cost can vary greatly. A flat fee may be charged to list houses of any price. Others might adjust their fees based on the asking price and other factors. In this example, let’s say you have chosen a flat-fee broker who charges $3,000 to list the home. This is a savings of $3,875. Even if they charge $5,000, it’s still $1,875 in savings.
Some flat fee brokers implement their charge at the listing, not when the property sells. That means that you are paying the fee whether the home sells or not as opposed to the commission based commission structure.
Many flat fee real estate brokers offer multiple tiers of services at different price points. Meaning they may have a very low cost for simply entering the property into the MLS, in which the home seller deals with everything else. Additional offerings will bring you closer to a full service Realtor.
- Know upfront what you’re paying
Since flat fee real estate brokers will charge you a fixed price, it allows home sellers to set a budget that is more precise.
You’ll be able to calculate how much you can afford on your down payment if you are buying another home. This will also help you plan for all the other expenses involved in selling a house. You may need to pay attorney fees, notary and filing fees, title company fees and any taxes. You can also budget more for moving expenses.
Discount real estate brokers – The Pros
- Save Money
The cost of hiring a realtor can be the single largest cost when selling a home. The best thing about working with discount brokers in real estate is the ability to save money. You can reduce the cost of selling your home by using discount broker services.
If we use the same $300,000 from the previous example, commission with a traditional listing brokerage would be $7,500. A discount broker would charge $3,000 at a commission percentage of 1%. Keep in mind that the buyer’s representative will also need a commission. But on the listing side, that’s a savings of $4,500.
While the dollar amount you’re saving is equal to the flat fee brokerage, you’ll receive a far higher level of service.
- Motivated agent
Brokers who specialize in discount real estate tend to process sales faster than traditional brokers, which helps them make up their lower fees. Discount brokerages are motivated to aggressively market their homes.
Unlike flat fee agents, a discount real estate broker has to sell your house in order to be paid. It’s also in their best interest to sell it at top dollar.
- Streamlined process
The streamlined process is another benefit of working with a discount broker. The traditional process of selling a house takes many weeks and can require a lot of work.
Because of their low fees, discount brokers are motivated to work efficiently and eliminate all unnecessary steps from the sales process. Brokers save their clients money by expediting the sale.
Disadvantages of flat fee and discount real estate brokers
Flat fee real estate brokers – The Cons
- Lack of motivation
Flat fee models have a few drawbacks. One is the quality of their service. Sometimes, a flat-fee broker will just list your house on the MLS. They have done their part. Now that the house is on the market, let’s wait and see what offers come in. They either know exactly what they are getting or have already received their money.
Remember, flat fee real estate agents are not full service Realtors. Selling a house takes effort. It doesn’t matter if the agent is handling the listing or if you are doing it yourself. Someone must do the work.
Proper marketing, open houses and showings are all important aspects of selling a house. Flat fee real estate agents typically don’t provide these services. Or, if they do, it won’t be included in the initial fee, and you’ll have to pay extra.
- Profit is not as important
Although the possibility of saving money is discussed often, it can sometimes be the exact opposite. As with the commission model, you can also run the risk that a house is underpriced. Why would this happen?
Flat fee brokers are less likely to help you sell your house for top dollar. You may not get the same level of negotiation from them. As a matter of fact, you may be the one they wind up negotiating with. They don’t care what the house sells for. They can sell it faster if the price is lower, and that’s one less thing they have to worry about.
It’s obvious that the selling price of your property directly correlates with the profit you’ll make. The decrease in profit could be far more than the amount you saved by paying the flat fee.
Discount real estate brokers – The Cons
- The risk of choosing the wrong broker
When choosing who will sell your home, it’s important to choose a trusted and proven discount broker. While the discount commission model is full service, that doesn’t mean you’ll receive the same level of commitment and work from every discount broker out there. You will want to look for a discount broker that has established processes and has a proven record of success.
It’s worth mentioning, however, this is not limited to discount real estate brokers. Even with the full price commission model, you can wind up with lackluster service. You’ll just be paying a lot more for it.
So when looking at flat fee vs discount real estate brokers, which is best? Well, each situation is unique. What works for one seller may not work for the next. It’s always important to weigh your options and figure out which one will work best for you.
It is worth noting though, that if you want a full service broker that will handle your sale from start to finish, the choice is clear.