Brokers

The Downsides of a Flat Fee Real Estate Broker


A home is a place to put down roots, start a family, and build a community—except, not really, because people are pretty restless. First homes are often considered “starter homes,” purchased with the implicit intention of living there for a relatively short time, and the average homeowner lives in their house about 10 years before selling it and moving into a new one. Which means they’re paying a lot of realtor fees.

If you’ve only ever bought a house, you might not consciously think about those fees, because the seller typically pays them—but they can add up. Typical real estate commissions range between 5-6% of the sale price of the house (the average commission in 2023 was 5.46%), split between the two agents involved. If you’re selling your house for $250,000, for example, a 5.46% fee is $13,650 of your profit paid to the buyer’s agent and your agent. This is negotiable, to an extent—agents can agree to take less—but many sellers find their eyes watering at the amount of money being shaved off their sale price. That haircut can inspire homesellers to seek out alternative arrangements, like a flat-fee broker.

The flat fee

A flat-fee realtor is exactly what it sounds like: Instead of taking a percentage of the sale price as a fee, they charge a flat, up-front payment, typically between $3,000 and $5,000, though this varies by region and the value of the home.

At first glance, that’s a great deal. Let’s say you hire a flat-fee real estate broker for $3,000 to sell your $250,000 home. Instead of $13,650, now you’re paying $9,825 in fees (the $3k to your agent and half the 5.46% still owed to the buyer’s agent), saving yourself close to four thousand bucks. That’s pretty good! And if your home is worth more, your savings can be much more dramatic. So why wouldn’t everyone use a flat-fee service to sell their home? The answer’s simple: You probably won’t actually save $4,000 on the deal.

The downsides

To be clear: You might save that much money, or at least significant money. But there are a lot of reasons this isn’t as easy as it seems:

  • The other agent. The first thing to remember is you’re still on the hook for the buyer’s agent fees. In our $250,000 home example, that’s close to $7,000. And since that fee is still pegged to the sale price of your house, if you sell it for more than expected—say, $275,000—after a bidding war, that fee will just go up. You’ll still save money on your side because your agent’s fee won’t go up, but it’s important to remember that your overall costs can increase even with a flat-fee arrangement on your end.

  • Add ons. When hiring a flat-fee service, you need to know what services they provide. Many flat-fee agents will only list your home in the multiple listing service (MLS) and do some light marketing, leaving everything else for you to either do yourself or pay for out of pocket. These costs can include stuff like having photos taken, advertising the home with printed signs or mailings, organizing open houses, staging services, and cleaners.

  • Liability. Real estate agents normally handle a lot of legal stuff for a home sale, but flat fee agents may not offer those services, or they may be an extra cost. Unless you’re familiar with the laws in your area and know all the disclosures you must make, forms you must fill out, permits, surveys, and other documents you’ll need to provide, you could find yourself responsible for some expensive consequences. You’ll also need to prepare the deed properly.

  • Lower sale price. A flat-fee home is essentially a for-sale-by-owner (FSBO) with extra steps, since you’re doing most of the work. And FSBO homes typically sell for a lot less than agented homes—a lot less. The median sale price for FSBO homes is $310,000, while the median sale price for homes with a full-service agent is $405,000. If you save $7,000 on fees but lose $100,000 on the sale price, you didn’t actually save anything. Another factor is agent motivation: A traditional agent has an obvious motivation to sell your home for the highest possible price: Their fee goes up. A flat-fee agent has little reason to put any effort into getting a better price, since their fee stays the same—and has already been paid.

While it’s certainly possible to save significant money by using a flat fee real estate agent, doing so requires you to know precisely what you’re getting in return for that fee and how much it will cost you out of pocket to do everything else. Plus, there are the non-monetary costs in terms of your time and labor, since you’ll be the one handling anything your flat fee agent won’t. Chances are, once you count it all up, you won’t have saved much at all.

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