Real Estate Commission and Brokerages 101

by James SheaFebruary 2, 2018

Real estate is no longer a one-size-fits-all business. Technology and a competitive market give you more options and provide you with new ways of saving money on a real estate transaction. The trend is clearly apparent in brokerage fees, generally one of the most expensive parts of selling a home.

Brokerages have historically split a 6% commission when a home is sold. The buyer’s agent got 3%, and the seller’s agent received 3%, and you had little to no negotiating power with the arrangement. That model worked well when homes sold for $50,000, as the fee was relatively small. Now, with homes selling for $500,000 or more on average, the fee has become larger, and buyers and sellers are putting pressure on the industry to change the model.
Open house sign in front of a home.
In general, brokerage fees are headed downward. REAL Trends, which studies brokerage fees nationwide, say the trend is toward a 5% or lower brokerage fee. Most brokers allow agents to negotiate the fee, and sometimes an agent will lower the fee to entice a property owner, creating a more dynamic market for fees.

One trend that has really taken off in recent years is a flat brokerage fee. Rather than paying a percentage of the cost, a set amount is paid, but, usually, the broker offers fewer services. It’s more of an a la carte way of selling a home. The broker will list the property on the Multiple List Service (MLS) but will provide very little marketing and other services.

If you are looking at ways to save money selling a property, a flat-fee broker might be the right decision. Here are few reasons why you might choose one.

You can do a lot of the work yourself

You are a savvy seller, and you don’t need many of the services offered through a full-service brokerage firm. You have been through the home-buying process before, and you understand what is needed to sell a home. You just want the most minimum amount of services from the brokerage and just need access to the MLS.

You have the time

Time is a precious commodity these days. A lot of it is required to sell your home through a flat-fee brokerage. Actually, everything involved in selling a home takes time. It’s time-consuming to take photos and write a description of the property. Potential buyers can contact you at any time, and you have to be available to answer questions about the home.
Photographer checks pictures on his camera.
You must decide if you can dedicate the necessary time to sell the property. A full-service agent’s job is selling property. He or she dedicates hours and hours a week to marketing and showing properties. You, as the seller, have to decide if a flat-fee brokerage is worth the time and responsibility.

Don’t want to do a For Sale By Owner

In the past, if you wanted to bypass the 6% brokerage fee, your main option was For Sale By Owner (FSBO). The owner would place a sign in front of the residence and maybe buy an ad in the classifieds. The process does not always work. For Sale By Owner homes generally stay on the market longer and sell for less. As a result, sellers have been moving away from the method. The National Association of Realtors recently reported that FSBO transactions reached an all-time low of 8% in 2016 and peaked at 21% in 1981.

The trend is counterproductive to people’s thoughts about marketing in the Internet era, but what’s actually happened is that many buyers are opting for a reduced-fee or flat-fee brokerage. These buyers want some assistance in the buying process but have decided against hiring a full-service agent. A flat-free broker is the perfect hybrid between a full-service agent and FSBO. You gain access to the MLS, but you don’t have a person marketing your property.

You want more involvement in the process

With a flat-fee brokerage, you are more active in the selling process. Sometimes, you are the one who opens the door and shows the home. You might also have to take calls from other agents and answer specific questions about the property.
Young woman sitting on a couch makes a phone call.
For many people, this can be fun and exciting. You decide how to market the property and what features to accent. If you want to hold an open house, you decide the dates and times. You staff the open house and answer any questions from potential buyers. It’s a very engaging process for many.

More buyers are pre-qualified

The problem, for many people, with FSBO is the quality of the buyer. Everyone can contact you about the home. Your phone number is on the sign in front of the home, and advertising will have your phone number. Buyers often contact you who either have no real interest in buying the home or are not able to obtain a mortgage. Many buyers contact a FSBO listing when they are looking for alternative forms of financing, like a lease-to-own arrangement or an owner-financed sale.
Young woman checking her tablet.
Most buyers who have access to the MLS are prequalified and working with an agent. They are quality leads and are actively interested in buying a home. They won’t waste your time.

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About The Author
James Shea
James Shea is an award-winning writer and author. He worked for over 10 years as a reporter where he covered development and land-use issues. For the last few years, he had written exclusively about construction and real estate.

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