Flat Rate Real Estate Services - Right for Consumers or Investors?

04/29/2015 02:27 pm ET | Updated Jun 28, 2015


If you've sold a home in the past, you know about real estate commissions, and you likely paid between 5% and 6%. There aren't fixed commission rates, as that's illegal. However, that range is popular with full service firms. Buyers don't typically think about commissions, as the buyer agent's take comes out of the seller's commission paid. The listing broker shares with the agent bringing the buyer.

This has been the way it has worked ever since real estate agents came on the scene, and there is definitely inertia in the industry when it comes to change. Real estate brokerages are very resistant to rocking the commission boat. These days there are some doing just that however. They're offering different ways to pay for their services. There are flat fees and hourly rates out there in many markets.

If you wonder how these new compensation structures are being accepted in the business, read the article titled "Flat-Rate Real Estate Group Strongly Disliked by Some Traditional Realtors" on a local CBS affiliate website in Denver. Reactions can be strongly negative, and it is true that the industry is ripe for change. A free market should work toward value directly related to services performed, but there is a difference of opinion about the difference in services between discount or flat rate brokers and "full service brokers."

Consumers and Flat Rate Real Estate Services

Change is made more difficult because most buyers still don't see a line item on their side of a settlement sheet for commissions paid. It's on the seller's side. It is a bit naïve to ignore this, as it should be obvious that the seller just factors their expense into the selling price. So, the buyer is actually paying the entire bill, just indirectly.

This is definitely a factor in adoption of new compensation models. Real estate agents/brokers who have tried to introduce "Real Estate Consultant" business models to buyers have found little interest. When it's legal in a state, this often involves charging a flat fee or hourly rate to buyers, then rebating the difference in the buyer agent commission back to their client. This can be a lot of money.

If buying a $300,000 home with a 5.5% commission split 50/50 with the listing broker, the buyer agent's brokerage is receiving $8,250.00. Many transactions take fewer than 30 hours of an agent's time, but let's say that this one does, and the agent charges the buyer $100/hour. That's $3,000, and the buyer would get back around $5,250 in a rebate. That's a nice chunk of change, but it's still tough to get a buyer to cough up money during the process for the time spent showing them homes and managing the transaction.

Investors and Flat Rate Real Estate Services

There could be a faster adoption of these new compensation models by investors, as they are factoring in all of the costs of a transaction and can readily see a nice savings. However, they're unlikely to want to pay the agent for showing homes or engaging in office activity to locate deals.
Perhaps enterprising agents who want to break out of the commission model will come up with hybrid arrangements with investors. Real estate investors should at least check into different service/compensation models, as they often do not really need a lot of the services advertised as provided in the "full service model."

This Blogger's Books and Other Items from...