Redefy Real Estate percentage vs flat fee

Selling real estate has been traditionally paid through a percentage commission to agents involved. The seller pays the agent 1 to 3 percent of the selling price as a commission to sell their home. The seller also pays the buyer’s agent usually a 2 to 3 percent commission. A flat fee real estate brokerage charges the seller a flat fee to list (a buyer’s agent co-op or commission may apply). What’s the better deal?

What a seller’s agent provides to sell a house

It’s important to understand what an agent does for a seller and why not having one isn’t the best option. First, the agent prices the house based on a comparative market analysis. This is essential to generate interest, get competing bids and reduce days on the market. This is something homeowners can struggle with on their own, because of emotional ties to the house and/or lack of relevant sales or property data.

Second, an agent negotiates the sale. With all the variables of a sale (price, concessions, etc.) it pays to have an experienced negotiator. An agent who does less than 6 deals a year is not an advantage (the national average is 5.1). An agent who works in a team-oriented brokerage has the benefit of double-digit transactions and years of combined experience with in-house agents for maximum negotiating power.

An agent who works in a team-oriented brokerage has the benefit of double-digit transactions and years of combined experience with in-house agents for maximum negotiating power.

Third, agents carry Errors & Omissions insurance. The complexities of a real estate transaction and the exacting details of a contract and its lingo is a breeding ground for errors. Errors (and omissions) are often minor and inadvertent, but the seller can still be liable. An agent’s E&O insurance will cover any mistakes, minor or major, as well as any potential legal proceedings.

Why technology has made it easier for the seller’s agent

Technology allows the agent to sell a home faster and with less manual effort. So charging a full percentage is really overcharging the seller. It’s the same effort for 1 percent or 3 percent to list a home on the Multiple Listing Service, where a house receives its unique ID accessible to all agents. From the MLS, it’s only a couple clicks to send that home with pictures and info to the brokerage website, large portals (Zillow, Trulia, Realtor.com), and thousands of syndicated sites (other portals and brokerage sites). Between internet-savvy consumers and buyer’s agents, the seller’s agent doesn’t have to do much to attract bids (provided the house is priced correctly).

Traditional agents who do all their own marketing and contracts are hampered financially at the 1 percent level. Their costs (desk fees, advertising, etc.) make it difficult to do many seller transactions at 1 to 2 percent.

Traditional agents who do all their own work with marketing and contracts are hampered financially at the 1 percent level. Their costs make it difficult to do many seller transactions at 1 to 2 percent.

Cloud-based brokerages have more of an advantage on the contracts side of things; they offer a paperless solution with digital contracts. Once information is entered, it can seamlessly auto-populate for subsequent forms, etc. Team-based brokerages take care of all the steps to closing for the agent so there’s no additional work once a house is under contract.

Seller’s agent commission comparisons

Let’s take a look at several scenarios for percentage commissions (for the seller’s agent only). For a home worth $300,000, a 1 percent commission is $3,000 (this is the minimum commission for most brokerages regardless of sales price); 2 percent is $6,000; and 3 percent is $9,000. For a home worth $400,000, a 1 percent commission is $4,000; 2 percent is $8,000; and 3 percent is $12,000. For a home worth $500,000, a 1 percent commission is $5,000; 2 percent is $10,000; and 3 percent is $15,000. That’s a lot of money!

Redefy Real Estate percentage cost

The latest numbers from the National Association of Realtors (NAR) shows the median US existing home price (for all housing types) is $234,200. Regionally, the median price is $345,400 in the West; $261,600 in the East; $204,000 in the South; and $184,500 in the Midwest. For the average buyer, anything above a $3,000 commission eats into a higher percentage of the homeowner’s equity.

Major metropolitan areas, especially those with a tech focus, are seeing much higher numbers. For example, Seattle’s median price is just under $600,000 (Trulia); San Jose is $980,000 (Trulia); and Denver is $398,000 (Denver Post). Even 1 percent at these prices is a significant loss of equity. Considering that it takes the same amount of effort to sell a home in Denver as it does in Indianapolis or Orlando, why would anyone want to pay that much?

Considering that it takes the same amount of effort to sell a home in Denver as it does in Indianapolis or Orlando, why would anyone want to pay that much?

Should you pay the buyer’s agent commission?

Here’s where most traditional, low-commission and flat fee brokerages agree. You need to pay the buyer’s agent a commission. It’s more work and time for a buyer’s agent to show homes and neighborhoods to potential buyers. Plus, not all buyers actually go through with a purchase (financing, change of circumstance, etc.). So with that risk in time, money and effort, many agents won’t steer a buyer toward a house that isn’t paying a decent commission.

The only way a flat fee or low commission for the buyer’s agent could work is if the agent works for the same brokerage and is willing to take that minimal payment. The odds are not in your favor.

The only way a flat fee or low commission for the buyer’s agent could work is if the agent works for the same brokerage and is willing to take that minimal payment. The odds are not in your favor.

Given a hot market and other circumstances, the buyer’s agent commission is negotiable for the seller, so you’re not necessarily paying a full 3 percent. Depending on the state, the standard commission varies (i.e. California 2.5, Colorado 2.8) so, again, the seller’s agent’s ability to negotiate is critical.

Not all flat fee brokerages are created equal

Flat fee MLS companies charge about $500 to $2,000 to list a house on the MLS, depending on the services you purchase (syndication to other sites, photos, signs, etc.); there’s no agent representation, so it’s a pretty risky move in today’s litigious and scam-ridden market. Plus, you will still need an attorney in most states to draw up contracts, so the savings disappear quickly.

Flat fee, limited service brokerages provide an a la carte experience. They’ll start with a relatively low price, but talking to an agent beyond an initial consultation, taking photos and other services will cost you extra. There’s no single point of contact, so you could find yourself bounced around or sitting on hold. Again, once the costs add up, you probably won’t save much.

Flat fee, full service

Flat fee, full service brokerages charge one fee to list a house (remember, the buyer’s agent is a separate amount). Whether your home is $300,000 or $900,000 it’s the same fee. What do you get? Everything a traditional brokerage offers:

  • A full agent experience
  • Listing photography
  • Listing on the Multiple Listing Service (MLS)
  • Syndication to hundres of sites, including Zillow, Trulia and Realtor.com
  • Negotiation
  • Contracts
  • All the steps to closing

Some even have some pretty cool extras (i.e. Redefy offers free address updating service through Updater). Just for fun, here’s that chart again with the flat fee option (to keep it simple, we’ll match the fee with the lowest 1 percent commission here):

Redefy Real Estate percentage vs flat fee cost

You probably don’t need to do the math, but just for laughs let’s just show how the savings compare with flat fee vs commission:

Redefy real estate flat fee vs percentage savings

So what’s the advantage of using a traditional agent/brokerage and paying a percentage? Honestly, we don’t know. You’re simply being overcharged to cover the costs of doing business the old way.

So what’s the advantage of using a traditional agent/brokerage and paying 3 percent? Honestly, we don’t know. You’re simply being overcharged to cover the costs of doing business the old way.

Advances in technology and streamlined processes have made it possible for innovative flat fee brokerages to cut down on the costs of selling a home and pass the savings to the consumer – and still provide a full service agent experience. The advantage? Extra money in your pocket for the more important things in life.

Redefy’s flat fee, full service agents are able to do an average of 48 transactions per year because our team of in-house agents backs them up. Put the savings of our flat fee together with the power of experience and the choice is obvious: Redefy Real Estate. Flat fee. Full service.

By Susha Roberts

 


Redefy is a full service brokerage for buyers and sellers. Save thousands with a flat fee to list. Because we’re pretty sure you have more important things to spend your equity on (not real estate commissions!).

Redefy Real Estate. For the Important Things (not real estate commissions)