Pitfalls of Flat fee vt real estate listings...look before you get stuck!

MLS ONLY LISTINGS

In the last few years as the real estate market has become tougher there has been a flurry of 'creativity' among some real estate companies in how they package their services. One such offering is the "MLS only" listing where,   in exchange for $500,  a real estate agency offers to place your property in MLS (agent's multi-list service...basically, a website). One might think, "Great, I get the exposure that the MLS might bring me without having to pay a 6% commission."

The problem with this scheme is the MLS itself. The MLS is the agent's playground and it costs 3 to 6%+ to play there. A property may get on MLS for $500 but that isn't the final cost to sell. It's the 3 to 6%+!

FLAT FEE LISTINGS

Agent's offer to list a home, not for the standard 6% commission, but for a 'flat-fee.'  For example, an agency might offer to list a $200,000 home for $4000. The issue here is that the $4000 is usually only a part of the total commission that the seller may pay. When a buyer's agent makes an offer on that property they will expect their 3% commission. So now you're up to 3+% + $4000.

So let's do the arithmetic:
(3% of $200,000 = $6,000) + ($4000) = $10,000 vs. $12,000 (at 6%)

So you could save $2,000 in commission fees. Not bad...if you sell. Relying on other agents to show a property listed by a discounter agency is really a great leap of faith. It is no secret that agents really don't like for sale by owner publishers, but they despise their own who cut their throats by discounting commissions (see FTC reference below).  As a comparison, if Picket Fence was used to sell the home, the entire $12,000 would remain in the owner's pocket...just sayin'

There is a long, colorful and documented history of the battles between discount VS full-fee agents. There real issue here is the question of whether buyer's agents would be so inclined to direct their clients to 'flat-fee' listings. Such listings might be on MLS but they are clearly identified and ignored. The Federal Trade Commission has had to deal with this 'blackballing' or boycotting behavior of discount broker listings by competing full-fee agents. (Residential Real Estate Brokerage Industry, Paul Roark (Federal Trade Commission) and Butters Report 1988). If this is a battle you want to get involved in, go ahead.

Take home message: There really is nothing new under the sun with respect to how real estate is bought and sold as long as any scheme the agent's devise involves their MLS. There are two clear and pure options: Sell it through a full-fee agency, get what they offer with the biggest fee you will ever pay. Or, sell it on your own, maintain control and save a fortune of headache and treasure.

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