Traditionally, selling homes has been paid via a percentage-based commission to brokers involved. However, flat fee brokers charge sellers a flat rate to list their homes. Let’s discuss everything you need to know about these two models in this flat fee vs commission real estate comparison.
Flat Fee Vs Commission Real Estate General Overview
Many real estate brokerages are offering alternative commission models to meet consumer demand and challenge the traditional model. With traditional commission real estate, the seller pays the broker 3% of the sale price to sell their property while flat fee brokers help you sell your property for a predetermined flat fee instead of this percentage-based commission.
What Is Flat Fee Real Estate?
Flat fee real estate is a model where you pay a flat fee regardless of the amount your home sells for. Some real estate realtors decide their rates after a consultation. Others have their own rates already predetermined as they prefer working off of flat fee charges.
So, if your property sells for $600,000 and you agree on a $5,000 flat fee, you will pay your realtor $5,000. However, this doesn’t mean you have saved $31,000. (The traditional real estate commission 6% x $600,000 = $36,000 – $5,000 = $31,000).
You still have to pay the buyer’s agent 2-3% which equals $18,000 on a $600,000 property. When you combine this with your flat fee, you will end up paying a total of $23,000. So your savings will be $36,000-$23,000 = $13,000, which is a lot on such a big deal.
What Is Commission Real Estate?
Commission real estate is a model where you pay a fixed commission percentage at closing. This means if you sell your house at $600,000, you would pay a real estate broker $36,000 at 6% commission.
However, the agent won’t walk away with the entire money as they will have to share the commission with the buyer’s agent. The rate is high because agents do a lot of work without getting paid to earn their commission. They also don’t earn any money until the property is fully closed.
Bear in mind that while the commission-based fees are about 5%-6% of the selling price, there are no regulations that require set commission charges. You can talk to your real estate agent and ask them to lower the commission rate. However, they aren’t under obligation to do so.
Flat Fee and Commission Real Estate Notable Features
Both flat fee and commission-based real estate brokers have certain features that distinguish them from each other.
Similarities and Differences
Below is a table to help you understand better the similarities and differences between these two models so that you pick the right model depending on your needs.
|Real Estate Service||Flat-Fee, Full Service Realtor||Commission-Based Realtor|
|Organizes and hosts showings sellers||Yes||Yes|
|Lists homes for sale on MLS listings||Yes||Yes|
|Helps with marketing, legal paperwork, and photography||Yes||Yes|
|Negotiates with potential buyers||Yes||Yes|
|Explains to sellers the benefits of an offer||Yes||Yes|
|Saves sellers money with a low flat fee||Yes||No|
Major Distinguishing Factor
The major distinguishing factor between flat fee and commission real estate agents is their rates. You’ll save more if you hire a flat fee realtor than a commission-based realtor. Here’s how much you can save, assuming a 3% listing fee for a broker and a $5,000 flat rate for the listing.
|Sale Price||Commission-Based Listing Cost||Flat-Fee Listing Cost||Potential Savings|
When To Hire a Flat Fee Real Estate Realtor
Flat fee realtors are ideal for home sellers with the confidence and experience to go for the sale by owner route. If you are an FSBO (For Sale by Owner) seller with no buyer lined up, flat fee realtors are also a great choice as it you are going to end up spending time and money on marketing anyway.
Selling your house without the help of a realtor can be time-consuming and difficult. Although you will save 3% in commission, it can be draining depending on the time you have to invest learning and dealing with many different contracts and legal processes. Some realtors only provide MLS (Multiple Listing Service) listings leaving you to handle everything from negotiating the sale to marketing and pricing your home yourself.
However, at CA Flat Fee, you get full service with:
- Complete closing coordination with escrow and title
- Professional marketing and photography
- Negotiations and offers
- We also coordinate all showings – all for a low $5,000 flat fee
When To Hire a Commission Real Estate Realtor
Although you might think not parting with hefty real estate commissions will put more money into your pocket, you will find it stressful to open your home to buyers when you don’t even know if they are qualified. Additionally, FSBOs fetch less than agent-listed homes.
This is because homeowners selling by themselves don’t understand market reports or the market value. A 2015 research also revealed that understanding paperwork was the most difficult task for FSBOs. Although you can download ready-made contracts, you may not understand what it means or get stuck in a bad transaction. Additionally, research shows that FSBO homes have less marketing reach resulting in fewer potential buyers and less competition all leading to lower offers.
Which Model Is Better?
Both flat fee and commission-based real estate models are great. However, you will pay a commission agent for comprehensive services, at a premium. With flat fee agents, especially full service ones, you will get all the same comprehensive services for a fraction of the fee.
If you intend to sell your own property and complete most of the work during the selling process, this can be a good money-saving opportunity that you may not get with commission-based agents. This makes flat fee agents a better choice because they offer so much value for a low flat fee.
Flat fee full service agents are better if you want to save more money selling your home and still receive the same benefits that traditional agents offer.