The Good, the Bad, and the Ugly of Taking Flat Fee Listings

Rather than post a REALLY long comment on Broker Bryant's post on the subject, I thought I'd write my own post on Flat Fee MLS listings. Ann and I ran a flat fee MLS company for 4 years in tandem with our company, and I know a ton about the Flat Fee niche. Essentially, for a flat initial fee of $200-$400 typically, you enter a listing onto the MLS under an exclusive agency agreement, where the sellers are their own defacto representative. If they find their own buyer they are exempt from commission, and if a buyer comes through their MLS presence they pay a commission to the buyer agent only. Clever idea. 

It might seem attractive to some. You pocket a few hundred dollars just for some data entry. What's not to like? The answer is plenty. Be careful. Consider all sides of the issue from someone that saw it all and got out.  

First, the upside:

• You get exposure. Those are your signs and your sales all over town. 
• You make a few hundred dollars quickly. As BB alluded to, $300 for an hour's work. 
• They might use you to buy their next home. Why wouldn't they? 
• They might bump up to full service. If they decide they really do need a pro, there you are ready to help!

Here's the downside: 

• Everything they do sticks to you. Even if you are in an MLS which has no minimum service requirements or liability for entry only listings, what they do reflects on you. You aren't going to take photos, you'll upload their photos. And if their photos suck, those are your listing's photos that suck. And when offers come in they'll screw up 2/3 of offers that would close if you were negotiating on their behalf. So you either work for free or watch helplessly as they boot it, while the other agents watch and shake their heads about how you operate. Buyer agent hate dealing with someone who they view as another broker's client, so you either have to step in or have your brand be in the hands of a FSBO. 
• They can wreck your stats. We had overpriced listings on the market for years while the owners speculated with a silly price. We didn't care until they skewed our days on market numbers. 
• They can harm your reputation. Remember, they are For Sale by Owners. FSBO. They march to a different drummer, and if they do or say something stupid, it is your banner they are sailing under. We've had flat fee clients get into arguments with buyer agents, ask buyers embarrassing questions, and hinder showings with their meddling. That makes you look like you have an out of control client. Hint: you do. If they have a FSBO sign on their lawn, agents will give you grief about it. If your solution is to operate under a separate company, you now have two firms to run, and 2 sets of overhead. Double MLS dues is only a start. You need signs. You need a website. You need other phone numbers. And before you know it, you need 3-4 flat fees a month just to pay for your overhead. 
• Other firms will solicit them once they find out they are flat fee. Not a big deal until they assume all of your listings are flat fee, then it becomes a dance between confused sellers and agents poaching your client base. Do you want that headache for $300? We put a stop to it once it happened, but we first had to find out it happened- the hard way. 
• They can waste your time. Ann has probably spent 1000 hours pacifying these supposedly entry-only people with incessant photo re-ordering, paranoid proofreading, endless status changes, chasing sellers down for appointments, and clingy, repeated requests for pro bono help and advice. 
• They do things they would fire you for doing. We had a guy who never answered calls for showings from agents. So we put him on CSS. CSS couldn't get a return call. So who gets called? Me, that's who. And I have to chase the guy down to get an appointment set up. If I pulled a disappearing act like that my clients would be livid! 
• They are mercenary. They are trying to save money no matter what. We've had a number of flat fee sellers who were ostensibly going to buy with me after they sold, and most of them ended up buying a FSBO or using another broker. Why? Because it's all about them, that's why. In four years we had one flat fee client use us to buy. The rest bailed. After working me like a rented mule in some cases. 
• If they "bump up" they typically jump ship. The thought was that many people would grow tired of going it alone and bump up to full service. And they did. The problem was that they wanted to use another broker. We'd be told that they wanted a real broker. The problem is that if you take a flat fee listing, you actually aren't a real broker in their eyes. So you aren't a viable alternative when they do decide to list with a full service shop. You prime the pump for your competition.