The expertise of a real estate agent or broker can be invaluable when selling your home. But that support can come with a costly price tag. Homesellers typically pay a commission to the agents who help close the sale, which is split between the listing agent and the buyer’s agent. As of 2021, according to RealTrends, the average national commission rate is about 4.9 to 4.94 percent of the home’s sale price.
Flat-fee brokerages and real estate agents offer an alternative to the typical commission-based model. The flat-fee model means the listing agent will charge a fixed rate for their services, rather than a commission based upon the final sale price of your home. While flat-fee services can save you money, it’s important to understand the pros and cons of this approach.
What is a flat fee?
A flat fee refers to a fixed charge that a homeseller pays a broker or real estate agent, instead of a percentage-based commission based on the final sale price of the home. When using a flat-fee agreement, the amount your home sells for does not impact the final fee you pay the agent or broker for their services.
“A flat fee in real estate is when an agent charges a set amount of money rather than a percentage of the sale. For example, instead of paying a 3 percent commission on a $500,000 sale, there could be a flat fee of $5,000 that goes to the agent,” says Rick Albert, a broker associate with LAMERICA Real Estate in Los Angeles. “No matter what the home sells for, the seller pays the agent the same amount.”
How does a flat fee differ from commission-based real estate?
The difference between a commission-based transaction and a flat-fee one is that the agent or broker gets paid the same fee regardless of the final sale price of the home.
“Using the $500,000 example, if an agent were to get paid a commission of 3 percent, that agent would receive $15,000 — versus a flat-fee agreement where the agent gets paid the same fee whether the home sells for $100,000 or $1 million,” says Albert.
Advantages and disadvantages of using a flat fee structure
Flat fees can be an attractive option because they offer the potential to save money, but it’s essential to understand the pros and cons of opting for this type of agreement.
Costs are made clear up front
Flat fees are fixed and are usually outlined in writing in a listing agreement. They will not vary or increase based on the price your home sells for. “A flat fee allows you, as a seller, to know exactly what you’re paying before closing, as it is not contingent on the final sale price,” says Will Rodgers, a Virginia-based real estate consultant with Keller Williams Realty.
They may save you money
Because flat fees are not tied to the final sale price of your home, this approach can potentially be less costly. Meaning you keep more of the proceeds from the sale of your home in your pocket. “In some cases, flat fees may save you money, as most of the time a flat fee ends up being lower than commission,” says Rodgers. “But it all depends on the terms of the deal worked out with your broker.”
Limited service options
Agents or brokers who work on a flat-fee basis do not always provide the same level of service as those working for a commission. When being paid a fixed or limited fee, an agent may not be able to dedicate as much time and energy to your listing. Some flat-fee agents will simply list your home on the local MLS, which is a database of homes for sale in your area. “There may not be enough margin for the agent to hire a photographer, conduct open houses, create video tours and more,” says Albert.
Less profit for the seller
Homesellers avoid paying a commission when using a flat-fee broker or agent — but they may also sacrifice on profit. A flat-fee agent does not necessarily have the same incentive to negotiate top dollar for your home. “The flat-fee agent has no incentive to get the seller the best price, because typically, the agent gets paid less than a traditional one,” says Albert. “The business model with flat fees is all about volume.”
A flat fee can offer home sellers a way to save money on agent commissions, allowing more of the proceeds from the sale of your home to remain in your pocket. However, there may be some trade-offs that come with the cost savings. A flat-fee agent might not provide the same level of service, and the final sale price of your home might not be as high as it would be with an agent who is working for a commission.