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Flat-fee brokerage is not new, but it has become increasingly popular in recent years. Now, as the National Association of Realtors and many brokerage firms face massive settlements and possible changes to commission structures, the entire real estate industry is about to learn a hard and fast lesson about being willing to negotiate (and accept) a lower commission structure to satisfy Cash Needs – Distressed Customers.
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Knowledge is power and certain aspects of working on a fixed fee or “discounted” fee cannot be ignored. Let’s take a look at the history of these brokerages, their pros and cons, and the important facts you need to know before accepting a flat fee.
how it started
The emergence of online discount brokerage and flat-fee referral services has put steady downward pressure on real estate commissions, but they were especially popular before the Great Recession.
Going forward, buyers and their agents will need to negotiate their own compensation. Most industry experts believe this will result in lower average commissions and new opportunities for savvy agents.
Flat-fee brokerages do away with the prevalent commission model and charge sellers a predetermined fee as compensation for the agent, regardless of the final sales price or the hours they put in to work. Commission is charged.
Since buyers are now responsible for paying their own agent fees, more people may flock to flat-fee and discount brokerage firms. However, many others may still have questions about how they work.
How a fixed-fee or limited-service brokerage works
Traditional real estate commissions are based on a percentage of the sale price of the property. This means that the higher the sales price, the higher the salary of the agent involved.
In contrast, fixed-fee or limited-service brokerages charge lower fees but often offer less comprehensive services. A flat-fee listing agent may place the property on the local MLS and provide some photos, but may not provide a full suite of marketing, showings, negotiations and home showing services.
These brokerage firms typically use one of several business models. Discount brokerage firms like Trelora or Houwzer hire agents directly and pay them a salary. Each sale is just a job assignment and the agent does not receive any compensation on a percentage basis. Trelora was acquired by Houwzer in 2022.
Discount commission structures vary, but a common theme is the upfront discount model.
For example:
Trelora markets homes to sellers for a 1% fee. They recommend a buyer’s agent charge a commission of 2% to 3%. They still mention on the website that sellers can save up to 50% over the traditional 6% commission. They again acknowledge the previous structure or that it was never changed after the lawsuit.
Houwzer launched a similar structure but emphasized that agents are salaried, providing a more consistent and affordable experience for sellers.
Redfin uses a similar purchasing hybrid model, paying its agents a salary and offering percentage-based bonuses for reaching certain performance milestones.
Some brokerages offer “a la carte” service options. Under this arrangement, customers select services from a “menu” and pay a specific fee for each service.
For example, a seller might skip the professional photos and comparative market analysis, but pay for a video or 3D tour, as well as the cost of each open house. Buyers may pay for each showing and negotiation services after they secure a property, but will use their own real estate attorney at closing.
Because consumers are often overwhelmed by the sheer number of choices, many such agencies offer prepackaged “tiers” of service, ranging from basic barebones packages to luxurious full-service experiences.
Decide if fixed-fee brokerage is right for you
A flat-fee or limited-service brokerage can offer many benefits to some agents, depending on their goals.
A fully paid position is essentially a compromise, where an agent trades the potential advantage of a lucrative commission for the security of a regular paycheck. For agents who don’t sell a lot of properties, this can be a very smart move. It’s also a great way for new agents to learn how the industry works and gain some experience while paying the bills.
The prospect of being a fixed fee agent can be more nuanced. Much depends on the size of the fixed costs; usually, Prices range from $500 to $3,000. That may seem low compared to traditional commissions on million-dollar homes, but fewer agents than ever are able to earn full traditional commissions.
While regular deals with traditional percentage pay may bring in more cash, after factoring in brokerage cuts and other fees, agents may find they earn less per hour than a flat fee, with lower costs and more direct deals .
Understand the collateral
A lot also depends on the property being sold. Those who are dealing with a desirable property in good condition in a hot market are more likely to find that working on a fixed fee makes sense because they may not have to spend as much time selling.
But if an agent is selling a unique or defective property in a tepid market, accepting a flat fee may not make as much sense given the time and effort it may take to close the deal.
This calculation is easier to manage for a buyer’s agent, especially if many buyers will soon be looking for low-cost alternatives to traditional commissions. A flat-fee buyer’s agent can charge simply based on the number of times they take a client to see a home and the specific work they do in the transaction, such as negotiations or paperwork.
Often, the deciding factor is sales volume. Active full-time agents with a growing network and many clients will see their fixed fees add up quickly. But for those who are just starting out and working part-time, a fixed fee may not be the best decision as it may significantly reduce their income.
Final Thoughts: Choose wisely, but don’t be afraid of change
As with any major decision, agents should carefully consider their finances, experience, career goals, market and other factors before making any significant changes to their compensation approach.
But for the right real estate agent, a flat-fee or limited-service brokerage can be the perfect way to make more money, work less, or both.
Luke Babich is CSO at Clever Real Estate in St. Louis.Connect with him on Facebook or Twitter.
