Flat Fees, Discounters & Snake Oil

You get what you pay for - DO YOUR HOMEWORK!

I've been in the real estate business since 1989. Since that time I've completed and reviewed well over 15,000 appraisals in three states and sold hundreds of properties here in GA. I've seen my share of people get hoodwinked, scammed and told things that bordered on insane. Yet and still, P.T. Barnum comes through..."There's a sucker born every minute". The bottom line is that you get what you pay for.

One of my best sources of business is picking up what's left of clients after they list with one of these flat fee firms. The plan is simple and everything is clearly noted - so I don't really have an issue with this business model. I have an issue being compared with them by sellers that don't fully research what they provide - we have two very different approaches. Consider:

  • They charge $500-$700 PAID UP FRONT to place your home in the MLS. If it sells you also pay additional MLS fees of .0034%. If you want anything beyond the listing, you pay per item. The $500 and any additional money is gone, even when your home fails to sell.
  • You typically have an "Open Listing", not "Exclusive Listing". You have the ability to sell the home yourself and not pay a buyer commission, but you also will have reduced assistance from the listing broker as all they are doing is placing your home in the MLS.
  • As this is not an exclusive listing, your $500 does not provide for much exposure beyond the MLS entry. Again, it's a pay as you go if you want "extras" (SEE THIS LIST OF OPTIONS).
  • If and when you do get a contract on your home, you will not typically have that broker negotiate and review the contract and inspection. They may be "available" for additional charge, but with the basic package you should expect a one page "guidance" sheet that simply tells you which boxes should be checked and terms to use for a counter. If you get an "agent" strong odds are it will be an inexperienced rookie. For the inspection resolution, you're usually on your own.
  • If and when you reach the closing table, expect to pay 3% of the sale price to the selling broker. You should know that these discount firms make their money on buyers and that's their focus.

Their business plan is sound; have their sign up all over and charge a minimal fee (but GUARANTEED FEES EVEN IF THE HOME DOESN'T SELL) and use their listings as "bait" to bring in buyers. Buyer brokers typically make 3% so if they bring in buyer business off your sign AND have the chance to sell your home and collect the 3%, all is good for them. 

So assume a $200,000 sale, let's do a little math on your cost:

  • 3% of the sale price goes to the selling broker ($6,000)
  • Minimum $500 UP FRONT for basic listing (assume you want a few photos and a tour so call it $1000)
  • MLS fees are .0034 x 200,000 = $680
  • basic total at this point is $7,680

Now for the variables during negotiation where you could easily be exploited if you elect not to pay to have them handle this part. Negotiable items include things like:

  • Closing costs, warranties, termite bonds, surveys, cleaning services, personal property...
  • Inspection and repairs - who is doing it, what's legitimate, how are you going to handle cost of repairs?
  • How many buyer loopholes are you aware of that could result in the deal falling apart?

Most brokers will charge between 5%-6% to list your home and handle everything. Assume that it's 5.5%; your actual the difference is the listing side of 2.5% since the 3% is to the buyer agent. So $5,000 is the full service side and we know the discounter will cost at least $1,680 so the actual difference is $3,320; still a good chunk of change.

Now, let's consider things you might not think about:

  • Your monthly payment on a $200,000 home is about $1,600+-
  • Utilities depend on the season; estimate $400
  • At the very best, you're getting a 10 minute market analysis - likely completed by a rookie agent, will be accurate?
  • With minimal marketing, it's very reasonable to expect that your home will expire at least once (at 1600 per month)
  • If and when you get an offer, will you be able to SELL your home to that buyer agent? Make an argument and convince them that it's a worthy purchase? You have no idea how many brain dead agents are out here and just drive clients around.
  • When the home is relisted, are you going to be able to explain the reason it didn't sell effectively, or are agents going to see it and leave it alone, watching is languish in the ocean of inventory?

Bottom line is that this might be a viable option in a strong seller's market; not now. This is a great business model for these companies because their primary business is buyers. Listing your home is just a means to an end for them. While many agents can't stand working with companies like these, I've done many deals with them. Of course it is more cumbersome since I'm dealing with the owner directly, but my buyers do much much better since I roll right over these unfortunate unrepresented sellers...and get paid to do it. On every deal I've done, there is absolutely no doubt that the sellers would have fared better with a full service broker.

Do your homework and shop more than just advertised expenses!