What is a flat fee?
A flat fee refers to a fixed charge that a client pays a broker instead of a percentage-based commission. The term is often used to describe flat fees charged by real estate brokers for listing and selling property.
A brokerage is a company that facilitates a financial transaction between a buyer and seller. In real estate, the seller of the property appoints the broker, and the services offered include:
- Property valuation.
- Property advertising.
- Showing property to prospective buyers.
- Performing agreed services such as closing.
In return, the broker earns a fee-based commission that is set at a fixed percentage of the selling price of the property. The total fee may be as high as 6 percent.
A flat-fee broker, also known as a discount broker, works differently, charging a fixed fee irrespective of the final selling price. This fee may be less than half the commission paid to a full-service broker.
While an attractive option, it’s important to understand that services offered by a broker who charges a flat fee are not the same. On the positive side, they mostly include:
- Multiple listings.
- For Sale signs.
- Phone answering service.
- Selling price recommendation based on consultation and property inspection.
On the other hand, these services typically exclude:
- Actively selling the property.
- Showing potential buyers around the house.
- Handling negotiations on the seller’s behalf.
- Arranging closing.
Before appointing a broker who charges a flat fee, it’s essential to understand the level of service offered and what’s not provided.
Flat fee example
Ernest and Jill are planning to sell their home to buy a larger property in another area. Because Jill doesn’t work, they decide to use a no-frills broker who charges flat free to list their home on several listing services. The agreement is that the broker will direct potential clients to Jill, who will show them around their home. Although Ernest and Jill have to do much of the actual sale work, they believe this approach reduces their selling costs, which ultimately decreases the size of the mortgage they need for their new home.