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

By
Managing Real Estate Broker with Howard Hanna Rand Realty License # 49FA1074963

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. 
Now, I recognize that there are plenty of flat fee guys all over the country (and I know one of the biggest) who have a more positive experience, and that is fine. Link to your own post in the comments with my blessing. My guess is that you are in a different area, you have a different set up, or you aren't building a main company as I am. To make it work right you might need to dedicate some serious investment to infrastructure that you don't have now or risk diluting your brand. We chose to work on leveraging the statistics to build our brand, which involved tons of free work, and we never regretted getting out. My numbers didn't suffer when we did.

Broker Bryant's decision to do flat fee in a selective basis is, therefore, prescient.  

My point is to be careful, especially if you are operating a full service model now. That extra cash for little work might be fool's gold. 

 

Comments (214)

Larry Estabrooks
Independent Real Estate Agent - Moncton, NB
100% representation means NEVER DUAL AGENCY !

Thanks for the thought provoking post Phillip. As other Canadians have commented, timely reading here in Canada due to the recent consent agreement between our federal Competition Bureau and our Canadian Real Estate Association.

Oct 30, 2010 03:20 AM
Mick Michaud
Distinctly Texas Lifestyle Properties, LLC Office:682/498-3107 - Granbury, TX
Your Texas Lifestyle is Here!

Sounds like you didn't separate your company's, completely.  With separate brokerage accounts on MLS, license numbers, identities, etc.  

However, its good to identifify what you're strong in and stick with that.  Sometimes, branching out into other service offerings can backfire. 

 

Good post on the pros and cons. 

 

Thanks.

Oct 30, 2010 03:39 AM
Dave Miller
RE/MAX Integrity, Dumont, NJ 201-385-8100 - Dumont, NJ
RE/MAX Real Estate Dumont,NJ - Bergen County, New Jersey Homes for Sale

Phil,  Great post but I have to come back & read it again when I have more time to digest.  Comments are great on this one too, some of the best I've seen....  I'm in NJ & not too effected by 'flat fee' at this time... It's best to understand what the competition does and not just wave it off/stick our heads in the sand... thanks for taking the time...

Oct 30, 2010 04:21 AM
Ira Freireich
Best Buyer's Broker Realty - Valley Stream, NY
EBA

Phil,

Great post - definitely generated a lot of comments.

A friend of mine has been toying with this idea and may give you a call at some time in the future, hope you don't mind.

Oct 31, 2010 03:11 AM
Hunter Harms
Retired - Fort Collins, CO

~~~~~

 

You know, I don't read Active Rain everyday. It takes a special post to get my attention.

Your post gets my attention!

*Good job! I learned a lot, thank you!

Oct 31, 2010 04:26 AM
Lisa Ludlow Archer
Live Love Homes-Keller Williams, Charlotte, NC Ballantyne Area - Waxhaw, NC

Phil,

We have the same issues here in our area. The reputation would be hurt too much but I do love the way that BB is handling his. (outside his main market is my fave).

Oct 31, 2010 09:35 AM
Sarah Taylor
RE/MAX Masterpiece - Port St Lucie, FL
Realtor - Port St. Lucie, Florida

Great post, Philip. I had always wanted to know the pros and cons of flat fee listing and this really helped spell it out for me.

Nov 01, 2010 03:48 AM
Sarah Taylor
RE/MAX Masterpiece - Port St Lucie, FL
Realtor - Port St. Lucie, Florida

Great post, Philip. I had always wanted to know the pros and cons of flat fee listing and this really helped spell it out for me.

Nov 01, 2010 03:48 AM
Pam Dunn
RE/MAX Premier Choice - Crossville, TN
Relocation Specialist

I am sure this model does not work in all markets as you said, and I am sorry yours did not work out. My firm is a flat fee company and we have done better than most agencies in town. WE would have it no other way. There must be ground rules so you are not hounded to death with petty issues. Good luck to you!

Nov 01, 2010 07:26 AM
Sandy McAlpine
RE/MAX EXECUTIVE - Cornelius, NC
Search Lake Norman Homes For Sale - Lake Norman NC

I am so glad someone else brought this up. The couple flats that I ever took were NOT worth it!! The particular sellers in question had me do three times the amount of work, changes, photos, calls, questions, than a regular listing. And, they were overpriced to boot. 

Nov 01, 2010 08:42 AM
Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

@ Sandy:  I hesitate to ask, Sandy... not wanting to sound rude... but whose fault was that ?  The seller's for asking, or you for either crossing the service guidelines you may have set when took the listing, or for not setting "seller service guidelines" in the first place.  Just wondering. 

Limited Service should be just that... along with having the seller sign an iron-clad set of addendums and disclosures showing that they understood the limited nature of the "limited service" listing they were signing.

Nov 01, 2010 09:01 AM
Alicia Stukes
Exit 1 Stop Realty - Bowie, MD
GRI, CDPE, Notary

Phil

Great blog on the pros and cons of flat fee listings.  Very informative!

Nov 02, 2010 01:37 AM
Carrie Sampron
Home Smart Realty Group - Highlands Ranch, CO
ABR SFR & Kathy Sampron (303) 931-3629 Highlands R

Phil:  I appreciate the way you've broken it down here for us.  Great information!  Carrie

Nov 02, 2010 05:49 AM
Stephanie Williams, Realtor Murrells Inlet
Seaside Properties - Murrells Inlet, SC

Thank you for the very informative post.  I have learned a lot.  Love the way you have spoken about your experience, not from what you perceive to be true. 

Nov 04, 2010 02:41 AM
Wayne B. Pruner
Oregon First - Tigard, OR
Tigard Oregon Homes for Sale, Realtor, GRI

You presented angles I never considered. I have no desire to ever be the "low bidder" in any endeavor.

Nov 07, 2010 03:06 PM
Tom Waite
Thomas Waite Real Estate Broker - Cypress, CA
So Cal-Apartment Bldg Investments

And yet, when push came to shove...

You maintained a fee based brokerage.

Hopefully, you were able to convert some of them to actual listings.

Nov 13, 2010 07:15 AM
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Phil, again "LIKE" - wish we had a Like button here in the Rain. I love your impartial perspective of both sides. I think BB has nailed a good way to do it for his market, especially if they are out of his normal service area, but for the reasons you have named, I don't think this is a good fit for our business model. So glad to have found this post from your other one - we were in the middle of changing brokerages last Fall, so I missed some great posts!

Sharon

Jul 03, 2011 11:38 AM
Matt Robinson
Professional Investors Guild - Pensacola, FL
www.professionalinvestorsguild.com

Very good points Philip, and it comes with a lot of credibility since you've done it.  I've never considered doing a flat fee service, but if the thought ever crosses my mind, I'll refer back to your post and smack myself.

Jul 20, 2011 05:44 AM
Ian Westwood
Mocksville, NC
Loyalty, Honesty, Commitment

Hi Philip, I have to say I stumbled upon your blog as a result of looking for information regarding Flat Fee services. This article/blog may now be over 3 years old, but I believe it is as relevant now as ever.

I have been in the industry only a relatively short while and am very keen to secure my first sale and see some income. With time, comes frustration, and one starts to think of ways to make even a small sum. Flat Fee services for FSBO's seems, on the surface, to be an ideal way to start bringing in some cash.

I am very grateful to you for providing such a clear set of arguments against this path and am now resolved to not be drawn into this option. Thanks. Ian

Mar 06, 2014 09:08 AM
Anonymous
Jamie Mattingly

Great post and reply comments. I have many highly educated clients and many are attorneys, educators, Physicians, Nurses, Cpa's or some other type or professionals that are selling fsbo with my flat fee company when selling their high dollar homes, which paying 6% for a listing does not set well with them. They hire attorneys and title companies to help them through closing etc, and many will offer at least 3% to a buyers agent and sometime more! As an advertising agency I contract just a couple of wholesale brokers who have licensing and MLS entry service for the client and they are always available as well to consult with the flat fee listing client for a small per 15 minute fee. Fact is 1 in 3 sellers are using a discount listing service, and agent can offer ala carte services for a flat fee and charge additional for any additional consulting on a needs basis. Posted by the owner of www.sellyourhousefastmls.com

May 01, 2016 05:43 PM
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