August 21, 2013

Flat Fee Real Estate Listing: Details and Benefits to Sellers

Source: Jon Minerick is the founder/developer of www.homecoin.com (California BRE #01888948), a flat fee real estate website serving California that is best understood as TurboTax for real estate (homecoin.com is not affiliated with Intuit Inc.) Although none of the statements and opinions by the author should be considered actionable real estate advice, sellers should consider this option.

Are you thinking about selling your home? Are you worried about how much money you are going to lose by paying a seller’s agent commission? If you find yourself stressed out over this, it is important to realize that you have other options.

Flat fee real estate listings are growing in popularity. With this, you are able to sell your home by owner while taking advantage of some of the many tools used by the top realtors. Best yet, you are going to save money along the way.

Flat Fee Real Estate Explained

Although this is not a new concept, many people are unaware of what flat fee real estate is all about.

We got in touch with Jon Minerick, the founder of one of the most popular flat fee real estate companies in California, to explain the finer details of the process:

1. Can you describe the ins and outs of flat fee real estate agent services?

Flat fee real estate agents unbundle the set of services that a traditional real estate agent provides and offer home sellers each service individually for a set price (or flat fee). The typical real estate agent provides services such as listing a home on the MLS, providing a lockbox, supplying the required paperwork, and providing general real estate guidance – all are usually available through flat fee agents.

It is important for sellers to understand how real estate commissions are split and how representation works in real estate to see the value that flat fee agents offer. When a seller signs a listing contract with a traditional real estate agent, that listing contract typically states the seller will pay the agent a 5-6% commission on the final sale price of the home. The agent then takes the listing and places it on the MLS where they offer other agents typically half of that 5-6% commission if the other agents can find a buyer. The key thing to note is that the seller’s agent is not usually the one who finds the buyer, and even if they did the seller would not want their agent representing the buyer as well because the parties have conflicting goals.

Listing a seller’s home on the MLS is the most common service provided by flat fee agents. Using a flat fee agent, a seller can list their home on the MLS for a small fee (we offer this service in California for $79) and provide the same 2.5-3% commission to buyer’s agents that a full service agent would have offered. If an agent finds a buyer, the seller can either further utilize the services of the flat fee agent to complete the transaction or they can hire an attorney – in either case there is a tremendous cost savings over paying the 2.5-3% commission that would have otherwise gone to the seller’s agent.

2. What would you tell people who think that avoiding the “traditional” sales route is a mistake?

I would first ask them what that conclusion is based upon. There are roughly 2.5 million real estate agents in the United States, most of whom making a living by encouraging sellers to use the “traditional” route and discussing the dangers of selling without an agent (or limited agent support). You can break down the services that a traditional agent provides into four general stages:

1. Pre-Market Preparation. Preparing your home for sale includes making fixes, staging, and taking photographs. Information on the steps to take here is readily available for free on the Internet. You can also consult your flat fee agent for more information.

2. Marketing/Showing. The Internet has changed real estate marketing dramatically. Placing your home on the MLS though a flat fee agent, which should also make your home appear on the major real estate websites, and offering a fair commission to buyer’s agents accomplishes most of the marketing legwork for you. Additional home marketing steps, such having a lockbox installed, placing signage on the property / having an open house, and informing your social networks your home is for sale – all of which can be done for free or through a flat fee agent – will expand your marketing reach to the sources of over 95% of home buyers.

3. Offers/Negotiation. There is a severe misalignment of incentives when dealing on a commission basis in real estate – for example, if an offer comes in for $5,000 less than you desire, the upside to your agent for getting you $5,000 more is going to be $125 extra in their pocket (based on 2.5% commission). The limited upside for negotiating can cause your agent to suggest that you should accept the lower offer as its potentially a big loss for the agent if you don’t accept the original offer (zero commission), with little upside for the agent by trying to negotiate ($125). The authors of Freakonomics did a great video on this phenomenon: http://www.youtube.com/watch?v=17jO_w6f8Ck. A final consideration is asking if the added value provided by a negotiation covers the cost of the agent to begin with (or would a seller be able to hire an actual negotiator or pay a consulting fee to an agent?).

4. Disclosures/Closing. All disclosure documents can be provided by a flat fee agent. As a general reminder, real estate agents of any kind are not authorized to provide legal or tax advice – you need to see an appropriate professional in such cases.

Sellers must also take into consideration how many hours they need to work at their job in order to pay their real estate agent commission. Financially savvy sellers recognize that they are paying after-tax dollars to compensate their agent, so a $10,000 commission – which is 3% on a $333k home – for someone making $75,000 a year ($36 an hour – $27 an hour, once 25% taxes are taken out), equates to a seller working 370 hours – or over 9 weeks straight just to pay their agent’s commission. Sellers should ask themselves if they believe they could be able to accomplish a similar outcome as their agent if they spent that time focused on the sale of their home. If an agent’s commission cost is financed into a mortgage, the amount of hours worked required by the seller to pay the commission cost is even greater.

3. What are the primary benefits of selling by owner? Anything in addition to saving on agent commission?

Ultimately, using a flat fee agent is a low risk way to potentially save thousands of dollars. Aside from the cost savings, selling your home without an agent can give you more control over the entire process – showings, open houses, presentation, and you are completely focused on just one home (yours). In addition, by selling your home without an agent you ensure that all offers from buyers’ agents get to you.

4. What should sellers look for when choosing a flat fee agent?

Some flat fee agents will charge $300+ for an MLS listing, but if you look around it can easily be had for less than $100. The main factors to look at when choosing a flat fee MLS provider are:

  • Price to list on the MLS (don’t overpay)
  • Maximum number of photos on the MLS (most allow up to 24)
  • Listing term (should be 6-12 months)
  • Syndication to websites. You want to be sure that your listing goes out to Trulia, Zillow, and realtor.com as they account for 50% of all real estate traffic on the web.

Final Thoughts

This is a lot of information to take in, but if you want to sell your home it is important to be as informed as possible.

Even if you don’t end up moving in this direction, you should at least consider the benefits of a flat fee real estate listing. How do you feel about making a bigger profit on the sale of your property?

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