Years ago, I tried to sell my home. So I found a realtor to discuss our strategies and his fees. After lots of flipping through his marketing materials, we finally got here:
“The fee is 6%, ma’am.”
“That’s a lot. Could you explain why your fee is so high? If the house sells very fast, can you lower the commission?”
“No ma’am. The fee is non-negotiable. I have to charge this because of the services I provide.”
“Could you elaborate on what services are provided? Other than putting it on the MLS and showings?”
“I provide the best service here! There’s a lot I do. You can’t find a better rate than mine.”
“Yeah, but if we can lay out the details of the services, maybe we could talk about what we, as homeowners can take over. We are ready and willing to do some of the work, if that could reduce the commission.”
“Ma’am, the 6% is really my best rate. If someone doesn’t defend his own commission, would you expect him to negotiate as hard for you?”
“Uhmmm… but that’s not what I asked …”
Years later, after I became a realtor myself, I found the exact saying in the salesman’s training manual, titled “Defend Your Commission”.
So let me get a little nerdy and talk about this commission model.
Almost 99% of real estate transactions nowadays is based on a percentage of the sales price. Usually it’s 5-6%.
So if your home is sold for $200k, you pay roughly $12,000 in commission. If your home is sold for $1,000,000, you pay roughly $60,000 in commission to realtors. In reality, the $200k home could actually take longer to sell, and involve more complicated work.
The commission model, although prevalent, is a relict from the pre-internet age. Back then, realtors walk the neighborhood, gather listings in their big book, and flip through the pages while selecting homes for buyers.
In other words, the somehow arbitrary 6% was actually the price of information monopoly.
But today, information is practically free. Everybody can look up a listing online. And yet this old practice is still here.
*Percentage-based commission is, in general, not very good
If the agent’s pay is directly associated with the price, there are several problems present:
- Higher priced deals get more attention. What about the cheaper homes? Bad service?
- the classic “agency problem”, especially for buyer’s agents. Agent’s motivation is not aligned with the buyers to get a lower price, but to push for a higher price.
- The amount/quality of work does not affect the payout, so agents end up chasing after listings, and do minimal actual work.
Percentage-based commission makes sense, as a way to motivate the salespeople, to generate more sales volume, or to tackle harder work. But in real estate’s case, each homeowner is assessed a fee based on their asset’s value, a fixed number, no matter the actual work. That’s equivalent of going to the doctor for a checkup, and charged a fee based on how much money you have in the bank, not what procedures done.
Our flat fee model
The flat fee model is just that, a flat fee, instead of the 6%. With the fee, comes clearly defined range of services.
There have been many new companies providing flat fee services recently. Realex Realtor being one of them. And we believe this is the trend for the future.
How does our flat fee realtor model work?
- Fixed commission rate instead of a percentage-based commission, resulting in savings of thousands of dollars.
- Commission based on actual amount of work done, agent is justly compensated for their time spent.
- Homeowners of all price range enjoy the same level of attention.
- Homeowners can choose their level of involvement, as little, or as much, as they want. Nobody is pushed to pay for what they didn’t choose.
We have several service packages, which you can find in www.realexrealtor.com/sell-for-flat-fee page. And we also have the flexibility to customize it based on your specific situation.
The Pros and Cons of Flat Fee Realtor Service
Tremendous savings, obviously
Homeowners are expected to do more leg work
Owners have the choice of their level of involvement, in exchange for rate discount
It could get tough for first-time sellers as the hand-holding will be less
No hovering over or pushy sales
Not familiar enough with the transaction process could lead to anxiety
What does Realex Realtor do differently?
Different from other flat fee providers, that is.
From our observation, a lot of homeowners are ready and willing to take on work related to their homes. That is, cleaning and decluttering, staging and remodeling, and showing homes to buyers. But when it comes to how to price the home, how to market it to thousands of other realtors, and what each step entails, “the transaction aspects”, it could get overwhelming. And flat fee providers usually don’t care to elaborate to each homeowner. Perhaps that’s one reason flat fee providers are not yet very popular.
Our program is a little different. In the MLS listing stage, we give you professional guidance as to the pricing strategy, how to best present your home online, and we actually help you check the accuracy and completeness of your listing, so you don’t have to google everything in anxiety.
And we give each seller the freedom to choose our level of involvement. If seller needs a lot of hand-holding and counseling, we will be there. If seller is capable of handling most steps, we won’t intrude.
The main difference, in my opinion, is besides professional ethics and integrity, we are guided by our belief in honesty and compassion, in our pursuit to help more people, instead of making a quick buck. We all have received help at critical times, and appreciate the positive impact it had on our lives. We now would like to pay it forward.