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Flat Fee Real Estate
Every now and then, something comes along and rattles an industry into change. Look at the world of online investing. The Internet has revolutionized the way people handle their stock portfolios almost over night. But, it hasn't just changed the way people buy and sell stock, it's changed the way we look for movies, shop for clothes, and communicate with the intent of saving money. While you can save money by using the Internet to invest in the stock market or to buy music CD's, can you save any money buying or selling a home online?Not usually. The problem has lied in the fact that the real estate industry has the "if it ain't broke, don't fix it" mentality. Billions of dollars are generated through real estate transactions every year and that's difficult to change. But there is hope on the horizon for the consumer and that hope is in the form of a flat fee commission.
| Real Estate As We Know It |
The traditional real estate model dictates that you list your home, agree to pay the listing office 3% and the selling office 3% for a total of 6% commission off the selling price of your home. Obviously this will vary from region to region, but the model holds true. Now if you have ever done the math on that, we are talking about a lot of money. The more expensive the house, the more you will have to pay.
If you own a $200,000 house and you sell it for 6% commission, then you will pay around $12,000 in real estate commissions. This doesn't include your other closing costs such as loan origination fees, escrow services, etc.
After the deal closes, and an office collects it's commission, that commission is split with the agent(s) working on the deal. The splits often start at 50% but can go as high as 80%. This means that after all of their fees, splits, etc., the brokerage is left with little profit. Therefore, they are required to sell a lot of properties to make money.
| How Do Flat Fee's Work? |
Some clever entrepreneur's have done the math and have found a way for buyers and sellers to save money. They've done it using technology and by embracing change, something that doesn't happen very often in the real estate community. Explorerealty.com and eHome.com are two examples of an interesting trend. Each company charges a flat fee for their services, which include listing your home on the Internet, in the Multiple Listing Service, and advertising in your local area.
Instead of paying a traditional commission to list your home, you agree to pay a flat fee. The flat fee is usually based on an average that is calculated from a sliding scale. So the fee will typically be dependent on the value of your home, but you will always know how much you are going to pay. But, you are going to have to agree to pay a selling agent a commission. That fee will depend on your market, but is always negotiable.
| How Do They Do It? |
First of all, their agents are not paid a commission, they are paid a salary. This (in and of itself) is groundbreaking for the real estate industry. One of the most difficult aspects of being a real estate agent has been finances. Most agents are paid after a deal closes. If the deal falls apart or a listing simply doesn't sell, the agent doesn't get paid. After lots of money spent in advertising, driving prospective buyers around showing houses, etc., that can be devastating.
The technology has allowed the brokerage to streamline the transaction process helping to speed things up. Now the agents have access to everything they need to know about a property, without leaving their desk.
Everything is handled online and you can track your transaction 24 hours a day, 7 days a week. eHome.com even has a feature where you can chat with an agent online during business hours. They've introduced a nice blend of technology and service that's going to be hard to beat in the future.
| Is This The Future Of Real Estate? |
Probably. But it's not going to happen overnight. There are still several variables to overcome, such as pricing. Right now it's in early enough in the game for brokers to experiment with how much they should charge. The question they have to ask is, "what is our time worth and what is the market doing?"
Because the real estate industry has trouble changing (remember the fax machine?), this will take the consumer to change the industry. By consumers demanding that brokers charge reasonable flat fees, large brokerages such as Century 21, Coldwell Banker, ERA, etc., will step up and take notice. That coupled with the success of smaller brokerages such, as Explorerealty.com and eHome.com, will also get their attention.
In 3 to 5 years, you should see a remarkably different real estate industry. With flat fees and 'For Sale by Owner' options, there will be more choices for the consumer offering greater flexibility and savings. Things that every homebuyer and seller will enjoy.
