Flat Fee Real Estate – How The Relationship Changes

As we were signing the paperwork on Saturday, I asked Paul Liebe of Redefined Realty alot of questions about the growing interest in “For Sale By Owner” movement.

You have to start with the idea that in Wisconsin the typical fees for the agents involved in the sale of a home is 6% (3.6% to the selling agent, 2.4% to the buyer’s agent). For a house like ours, that would amount to $18,000. That is a staggering amount of money. As I said yesterday, we weren’t sure if the value was worth the cost.

The first thing Paul said is that fees cannot stay where they are. Consumers will not stand for it. His business of listing homes for owners has grown doubled to tripled every year for the last four years. That gave me a pretty clear indication of what is going on.

What is really important about a flat fee service like Paul’s is that it changes the relationship. We paid him $500 to take pictures, provide signage and list the house in MLS. He gets his money upfront. If we are unhappy, we can do whatever we like at anytime (with agents you typically have a three to six month obligation).

The flat fee also removes any motivations around what happens with the price of the house. He charges extra for a price analysis, but was able to give us some quick advice based on what he was seeing in the market. The most important thing is that it is objective advice. Before we decided to do it ourselves, we had two real estate agents in and they talked about what they would price the house at. They were significantly different. It was hard to tell how they came to such different conclusions, but it clearly made us wonder.

This move to flat fees in real estate bears a strong resemblance to financial services. There is a growing trend in flat fee services versus planners being compensated as a percentage of assets or by the products they are selling. Again, it is about the agent doing what is in the best interest of the client.

One last thing-by listing in MLS, we are encouraging buyer’s agents to contact us. Those folks still expect to be paid. Many people when selling themselves reduce the rate and say they want to save money any place they can.

We went the other way. By savings some money on the selling side, we decided bump the commission up to 3% (from 2.4%). For our house, this means another $1000 to $1500 in the agent’s pocket. Everyone we talked felt this was an effective way to lure in agents and their clients. We’ll see…

4 thoughts on “Flat Fee Real Estate – How The Relationship Changes

  1. It’s nice to hear about another realtor who can appreciate consumers reluctance to pay the sizable commissions being charged in most markets. After my own challenge finding such a broker, I’ve started trying to track down all the brokers offering flat fee services across the country, and it has been surprisingly challenging in many cases.

  2. I think one thing keeping commissions high is the large percentage of real estate transactions handled between agents and consumers with a personal relationships. People don’t feel comfortable asking their friend to knock down the commissions. This keeps them irrationally high.

  3. Came across your webpage while googling Redefined Realty. We too have recently listed a house with them (Sussex Colonial). Love the flat fee because my husband and I believe that agents are ridiculously overpriced. After looking at a few expensive houses($600k plus), we found the agents (the listing agent mind you) to be lacking in knowledge about their own property. Everything was “I will have to get back to you on that”, and “Oh, I don’t know…”. In one vacant house we were considering, a dead mouse was laying in the middle of the basement and the agent simply stepped over it!! Tell me why they are paid 6%???
    Anyway, I was wondering how your sale was going? We have not had one agent call – thought maybe your 3% approach was interesting. Let me know,

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