Using a flat-fee brokerage can help you save significant money on commissions, also known as realtor fees.
However, the costs can add up with only a single wrong decision. Hence, whether or not to opt for a flat fee brokerage depends on several factors.
In this post, we’ve provided the details you need to make an informed decision.
This includes the pros and cons of using a flat fee brokerage and the best situations to use a flat fee brokerage in.
You’ll also find other methods you could use to save money on commissions.
Key Takeaways
- Flat-fee brokerages charge a fixed upfront amount instead of a percentage commission.
- They can save sellers money but may offer limited services or hidden fees.
- Ideal for experienced sellers, investor-flippers, or homes in strong seller’s markets.
- Alternatives include FSBO, flat-fee MLS listings, and discounted real estate brokers.
Table of Contents
What Is a Flat Fee Brokerage?
A flat-fee brokerage is a real estate company that charges its clients a fixed upfront amount for selling or buying a property.
Traditionally, brokers charge their clients a percentage of the transaction amount—a percentage commission.
If, for example, you sell your property for $700,000, your agent would receive a percentage of that amount as commission or payment for their services.
The percentage commission usually ranges between 5 and 6 percent of the transaction cost and is shared equally between the seller’s and buyer’s agents.
When split equally, each agent receives about 2.5 to 3 percent of the transaction price as a fee.
If, for example, a property is sold for $500,000, both agents would share a commission of $25,000 to $30,000 between themselves.
Before now, the seller had completely covered the commission cost. The seller pays a percentage commission to both their agent and the buyer’s agent.
Selling your house for $500,000 at a 6% commission rate means you would have to subtract $30,000 from your proceeds to pay both agents.
Thankfully, the rules have changed, and buyers are now responsible for paying their agents. Still, some sellers may offer to cover the buyer’s agent fees to make their offer more attractive.
With a flat fee broker, the amount you’re paying your agent is fixed. It doesn’t depend on the home’s final sale price. Also, you pay the fee upfront: before the house is sold; not after, as you would with a traditional real estate broker.
Using a flat fee broker can help you save on costs. On average, flat-fee companies charge about 3,000-5,000 dollars.
Of course, the amount you pay will depend on the area your house is located in and the market conditions.
When hiring a flat-fee brokerage, you must read the agreement carefully. On the surface, a flat-fee realtor seems cheaper than a traditional realtor; however, there may be additional fees or a hidden percentage commission (usually about 1%).
A real estate agent’s income has to come from somewhere, so carefully consider their fee structure to make sure it is not coming from your pocket.
Pros and Cons of Using a Flat Fee Brokerage
Flat-fee real estate brokers look like every real estate investor’s dream. Still, you should not rush into it too fast.
Before opting for a flat fee broker, consider the following pros and cons.
Pros of Using a Flat Fee Real Estate Broker
There are several advantages to choosing a flat-fee listing agent over a full-service broker. We’ve outlined some of them below.
You May Save a Lot of Money
Opting for a flat-fee estate broker can help you save significant money. However, this largely depends on the conditions of your contract and the flat-fee agent you’re working with.
Usually, flat fees range from $3,000 to $5,000, much less than the 5 to 6 percent commission of the property’s selling price.
According to The Motley Fool, the average home sales price in the third quarter of 2024 was $420,400.
This leaves the average commission traditional realtors charge at $21,000 to $25,000, far higher than the flat fee rate.
You Know How Much You’re Paying Upfront
With traditional agents, you don’t know how much you’ll pay in commissions until you’ve concluded the sale process.
This is because your agent fee depends on the final sale price. As a result, you may be unable to effectively plan your finances.
Without going into too much detail, some people don’t agree with this which is why a commission lawsuit was filed – which makes us question this type of fee.
A flat fee, on the other hand, has nothing to do with the sale price of your property. You know the exact amount you’re paying your real estate agent from the get-go, and you get to pay the money upfront.
Knowing the fee upfront makes it easier to plan and manage the financial burden of acquiring a property. It also simplifies the financial transaction details of selling a property by eliminating the need to calculate commissions.
Avoid Paying for Services You Don’t Need
Hiring a flat-fee broker lets you choose the exact real estate services you’re paying for. This may come in handy for sellers who already have a level of experience in the real estate industry.
Many flat-fee realtors have a pricing structure that’s made up of different packages and service offers. This allows you to decide the aspects you’d like your broker to handle while you take care of the rest yourself.
More Control Over the Real Estate Transaction
Hiring a flat-fee real estate agent gives home sellers more control over the transaction process. You can set the price for your home, handle price negotiations, and decide when showings take place. Many experienced real estate investors prefer this hands-on approach.
Your Home’s Selling Price is Determined by The Market
The sale price of your home does not affect your agent’s payment. Hence, you won’t have to deal with local agents overpricing your home and leaving it on the market for too long.
Cons of Using A Flat Fee Real Estate Broker
Before choosing a flat-fee real estate broker, consider the drawbacks outlined below.
Limited Services
Many flat-fee agents offer limited services because their pay is low compared to percentage-based commission. Some may only provide the essential services, like listing your home on local MLS, leaving the rest to you.
Sometimes, the services you receive also depend on the package you choose. This is why it is crucial to carefully read the fine print and ask the right questions before signing the listing agreement.
Possibility of Hidden Fees
Flat-fee real estate brokers may come with unexpected hidden fees for other services. Also, some flat-rate brokers request a percentage commission (usually 1%).
You May End Up Spending More Money
Another drawback of using a flat-fee broker is the extra cost. Although the idea behind hiring a flat-fee broker is to save money, you may incur additional costs and spend more money than you budgeted, even after paying the flat fee.
Some flat-fee brokers only provide the barest minimum of services. As a result, you may be charged for additional services like lockboxes, photos, and signage.
Also, you may need to cover the buyer’s agent commission to sell your house faster.
You Have to Pay Upfront
Going for a flat-fee agent means paying your agent’s fees upfront before your house is sold. This can cause your out-of-pocket costs to add up.
Less Attention from Your Broker/Agent
Flat-fee brokers work on a volume basis. This means that the more houses they sell, the more money they make. As a result, they often have a lot of houses on their hands and may not give your house their full attention.
Instead, they may rush through the deals and negotiations just to close your deal and move on.
While it is possible to sell your home fast, we always suggest taking your time and not rushing the process if you don’t have to.
You May Not Get the Best Value for Your Property
Since the selling price of your property will not affect the broker’s commission, they may be less motivated to find the best buyer and price for your home.
This is especially true since their income is predominantly determined by the number of houses they sell, not by how much they sell.
When Should You Use a Flat Fee Brokerage?
In certain scenarios, a flat fee model may be ideal. Most sellers choose this model to save money.
However, this may not be advisable for first-time home sellers, as the real estate market can be difficult for newbies to navigate.
Some other favorable situations are:
- When Your Home Is Simple to Sell: A home that is simple to sell is in good condition and does not need extensive repairs. It is much easier to sell such houses.
- When You Are an Experienced Home Seller: A flat-fee broker is beneficial for someone with experience in selling a home, who can effectively navigate the marketing and negotiation process.
- When You’re in a Seller’s Market: In a seller’s market, homes sell fast. Since it’s easier to sell your home in a seller’s market, you may not need the comprehensive services of a traditional real estate agent.
- You’re an Investor or Flipper: Every dollar counts for an investor or flipper, and any opportunity to save on costs is welcome. Since many of them are well-versed in the real estate scene, they can handle some parts of the transaction themselves. Hiring a flat-fee real estate broker might be in your best interest if you’re in this category.
Alternatives to Using a Flat Fee Brokerage
Consider these options if you’ve decided against a flat-fee brokerage but still want to avoid a full-service agent.
For Sale By Owner (FSBO)
“For sale by owner” refers to situations when home sellers market and sell their property themselves, without the help of an agent or brokerage.
Depending on your experience selling homes, this method can be profitable or detrimental.
This method will allow you to save the money you would have used to pay agent commissions.
However, handling a home’s marketing and selling process can be complex, and newbies often stand to lose more than they gain by leaving out an agent.
If you go this route, pay careful attention along the way to make sure that you look out for reasons that your house may not be selling.
Flat Fee MLS (Multiple Listing Service) Listing
A multiple listing service is a database of available houses in a certain area. Real estate agents often use it to share information about available properties with each other.
Usually, only real estate agents have access to MLS listings. However, a flat-fee MLS service allows property owners to add their homes to the MLS for a flat fee (usually a few hundred dollars).
Using a flat-fee MLS listing eliminates the need for a listing agent. You can set your asking price, schedule your open houses, and determine your marketing strategy. Think of it as a kind of FSBO model.
For someone wishing to sell their home themselves, using a flat-fee listing company can give your property more exposure.
Discounted Real Estate Brokers
Discounted real estate brokers use the traditional real estate commission model at a discounted price.
A traditional real estate agent may charge between 2.5% and 3% commission for their services, but a discounted broker would charge only 1%.
Unlike flat-fee brokerages, you don’t pay discount brokerages upfront. You pay them after your sale is concluded.
Wrapping Up
Flat-fee brokerage offers a unique approach to listing a home. Its fixed fee structure can help with commission cost savings.
However, it may not be the best fit for every investor. Without the right guidance, you may be spending more than you stood to gain.
Physicians Thrive has a pool of seasoned financial advisors who can provide expert real estate guidance and help you decide if the flat fee model works for you. Reach out to us today!