Flat-fee MLS

Flat fee MLS (sometimes referred to as "flat rate mls" or "fixed fee mls") refers to the practice in the real estate industry of listing a property for sale in the local Multiple Listing Service (MLS) for a set dollar amount (the "Flat Fee") as opposed to a commission based on the sales price of the property.

In this instance, the listing contract between the real estate broker and the property owner typically requires the broker to provide specific marketing services agreed to by the property owner and broker and for the broker to enter the property into the MLS. The property owner pays the broker a flat fee for the services provided. The net effect is to reduce the cost of selling real estate for individual property owners by a) waiving the standard "fiduciary responsibilities" of the listing agent; b) making the real estate industry's MLS available as a marketing tool for property owners desirous of saving money by not paying for all of the typical "full services" of an agent; and c) in essence shifting much if not all of the responsibility for selling the property from the listing agent to the property owner.

The flat-fee service is radically different from traditional real estate broker services. Because every State requires a listing agreement between a real estate agent and property owner, the rapid explosion of flat fee service providers has created a gap in the States developing laws governing Flat Fee services provided by real estate agents. In most MLS systems, there are generally two types of listing agreements. The first and most common is called an "Exclusive Right to Sell" listing, in which the seller will not only pay a commission if their property is sold through their listing broker or another MLS broker (buyers agent), but also if the seller finds their own buyer. In an "Exclusive Right to Sell" listing, the listing agent gets the commission specified in the listing agreement regardless of who actually finds the buyer. The second type of listing agreement is called an "Exclusive Agency" listing agreement. This "Exclusive Agency" agreement generally allows the seller to continue to sell "By Owner" and pay zero commission if they are successful in finding their own buyer. It is this "Exclusive Agency" listing agreement that forms the basis for many flat fee service provider's listing agreement. In essence, Flat Fee MLS listings are a logical progression of reduced-cost selling alternatives to property owners who are comfortable with managing part or all of the selling process and who value the power of the MLS as the largest data exchange of available real estate in the United States.

The listing fee for a "flat fee MLS" can range anywhere from $49 up plus the percentage commission the property owner agrees to pay a Buyer's Agent (if there is one). The commission which is normally paid to the "listing" broker is replaced by payment of the flat fee.

Variations and types of limited service

The term "flat fee MLS" is used to describe the services and fee structures of real estate brokers and agents who offer real estate services on a "limited service" or an "a la carte" basis rather than as part of a bundled suite of services provided in the traditional, full service, commission-based model. In flat fee listings, the seller is paying to be advertised in the MLS and receive other specified marketing services. The seller, in many respects, is selling the property as a For Sale By Owner (FSBO), and actually waives those "fiduciary responsibilities" an agent typically owes his or her client. The "flat fee MLS" company typically does not assist in any of the contract preparations, or assist in any way other than providing those contracted marketing services and entering the property into the "MLS" system. Of course some Flat Fee service providers are now offering "contract review" and/or "contract negotiation" services as an upgrade option, but that should be spelled out in detail in any Flat Fee service agreement. In some areas, such as New York City, agents by practice do not typically prepare contracts, so the lack of agent's providing contract preparation services is a moot point. On the other hand, in states like South Carolina where agents can act as "scriveners" and actually provide and complete forms prepared and archived by the State's Realtor Association, Flat Fee subscribers should ask whether their Flat Fee service provider will provide standard real estate forms as requested.

Typically, with flat fee MLS the fee is paid at the time of listing the property, rather than at closing (or settlement, as it is known in some parts of the US) as is the case with traditional brokerage services.

Flat Fee Service Advantages

Many flat fee service providers allow the seller to advertise as a For Sale By Owner (FSBO) by using their sign and contact information in the yard. In fact, there is some degree of confusion in the market regarding FSBO signs being used on properties that are also listed in the MLS. Some MLS systems reportedly have issued a rule that disallows FSBO signs if the property is listed in their local MLS - a rule which may draw the ire of the DOJ. Other MLS systems have not.

Another significant advantage to Flat Fee is most service providers stipulate that if the seller finds his own buyer without the use of a buyer's agent, then the buyer's agent commission is eliminated, and the seller owes no agent a commission.

Other advantages for the seller may include the option to cancel the listing at anytime without penalty (sellers should investigate this prior to signing any service agreement) and relist with another service provider or full service agent, effectively eliminating any "minimum length of service" (the listing period) typically required by full service agents. Because MLS rules typically have strict requirements of its member agents, a Flat Fee subscriber may not be able to terminate a listing after a contract with a buyer represented by a Realtor member of that MLS system has been ratified. The reason for disallowing termination or withdrawal from MLS under this scenario is because the entire MLS system is based on its members agreeing to cooperate with each other and ensure payment from their listing clients to each other upon closing. To allow Flat Fee listings any privileges in this regard would undermine the very foundation of the MLS system.

Flat Fee Service Disadvantages

A potential downside of using a flat fee listing service is that, in most cases, the seller must represent himself in the transaction, or arrange for other professionals such as an attorney or title company to handle closing. Because most Flat Fee service providers offer "limited representation" by the real estate broker, which typically excludes services such as offering advice during contract negotiations and making sure all offers, counter-offers, counter-counter offers, etc. are properly executed by the parties, flat fee listings are not advised for the first time home buyer, or for the property owner who simply does not have the time or perhaps personality to manage the selling process. In any case, both flat fee (limited service) and traditional full service brokers should always advise clients to seek qualified legal and tax advice regarding their real estate transactions.

Flat Fee may not be the best choice for sellers who have moved away from the area where their home is located, either. While it happens successfully from time to time, it can be difficult and frustrating for a home owner to negotiate a long-distance contract and smoothly navigate to a closing.

Sellers should be aware that once the fee has been paid, it is generally non-refundable and non-transferrable. In fact, some service providers charge a penalty if you withdraw or terminate your listing prior to the agreed-to period. Sellers should demand the opportunity to review all paperwork prior to signing and paying for a flat fee service.

In a flat fee program, sellers probably will not have the access to their agent they normally would in a full service listing agreement. Even asking simple questions about "who pays for the home warranty?" in a negotiation with a potential buyer may go unanswered by your agent.

Sellers should realize that Flat Fee programs are not a panacea for problems or issues they may have experienced in trying to sell their home. No real estate agent - limited or full service - can guarantee a property owner's home will sell at the desired price and terms.

History

Traditionally real estate brokerage services in the United States have been delivered as part of a bundled package including such services as (i) assisting the seller in setting a list price for the property; (ii) marketing and advertising a property for sale, including listing the property in the MLS; (iii) handling buyer inquiries and scheduling and arranging showings of the property to prospective home buyers; (iv) holding "Open Houses" to allow the public to preview a property for sale; (v) handling contract preparation and negotiation on behalf of the seller; (vi) management of the real estate transaction to final settlement (or closing escrow). The fee structure for this bundled package of services in the United States and Canada has generally been to pay a commission on the gross sales price of the property of between 5-7%.

Stephen J. Dubner and Steven D. Levitt report that this typical large commission does not even benefit the average real estate agent as much as one might expect from the recent run up in housing prices because of the excessively large amount of time that the average real estate agent must spend trolling for new clients, and the relatively small percentage of their time they spend actually performing real estate services for each client.

However, the fixed fee concept existed for many years before the internet became popular. There are also fixed fee broker groups that cooperate with each other across the United States. Many FSBO websites will also locate local flat fee brokers for interested sellers. Those offerings normally include a FSBO webpage to assist in advertising the property.

In recent years, with the unbundling of services accelerated by the advent of the Internet, a number of brokerage models have developed to cater to the FSBO market by providing services on an "a la carte" basis. The widespread availability of information about properties for sale has caused downward pressure on real estate fees in the United States. For changes in the industry also read real estate trends.

A useful overview of real-estate payment practices in the United States is found in an October 2006 report by the AEI-Brookings Joint Center for Regulatory Studies. The study notes that "real estate broker commissions are strangely unrelated to either the quantity or quality of the service rendered or even to the value provided." It further concludes that "consumers would benefit most from a fee-for-service approach – combining flat fees, hourly fees, and bonuses, including percentages of extra value created." It offers a number of examples of such options.

Issues affecting the fee-for-service brokerage

There is concern about the sustainability of the business model as fee-for-service brokerages face regulatory changes. In Canada, discount brokerages claim their access to the MLS has been limited by the Canadian Real Estate Association (CREA). As a result, the Competition Bureau has made inquiries into proposed changes. In November 2006, Realtysellers (Ontario) Ltd. suspended operations, claiming itself a casualty of CREA's actions, despite its victory in 2004 in a protracted legal battle over access. Meanwhile, consumers await rebate cheques (cash back) with increasing uncertainty.

In addition, there is speculation that the business model is not economically viable given increasing brokerage and registrant costs, competition, and liability (which could lead to disciplinary penalties). However a number of flat fee brokerages have maintained profitability over periods of 5 years and longer and continue to do so in spite of these obstacles. There is a growing sentiment within the industry that "fee for service" will eventually supplant the traditional brokerage model as growing consumer distaste for the inefficiencies inherent in a commission based system broadens.

Minimum service laws

One of the current issues affecting a property owner's ability to select individual real estate brokerage services from a fee-for-service broker, such as flat fee MLS listing, is the imposition in certain states of "minimum service laws". These laws require real estate professionals entering into exclusive service provision agreements with their clients to provide a state-mandated minimum service package that includes many of the duties associated with negotiating a property sales contract.

In some states, such as Texas, these laws have already been passed. New Mexico's Real Estate Commission passed a similar set of rules for real estate brokers in that state, but rescinded them after pressure from the Department of Justice.

Termed as "anti-competitive" by the Federal Trade Commission, these laws have come under scrutiny by the United States Department of Justice. Citing a lack of proof of any harm to or complaints from consumers or any calls from consumer groups for such stricter regulation of the industry in this regard, the DOJ says these laws tend to require real estate brokers to charge more for their services and restrict choices for consumers.

Critics of minimum service laws claim the effect and intent is to protect traditional commission fees. And by forcing consumers to purchase services they may not want or need, these laws actually harm the public. Proponents argue that requiring a minimum level of service insures uniformity within the industry and protects property owners from being taken advantage of by unscrupulous buyer's agents.

Need to inform the public via written disclosures

An alternative to "minimum service laws" is a written disclosure to home buyers and sellers of exactly which services will be offered and which services will not be offered. Proponents of this method point out that a disclosure-based alternative allows consumers to be fully informed about the services they may not receive using flat fee or limited services while still allowing them a choice in the types of services to be purchased. Ohio and Virginia are states that have recently passed legislation to allow a new form of representation called "limited service representative" which calls for the real estate practitioner to (i) disclose that the licensee is acting as a limited service representative; (ii) provide a list of the specific services that the licensee will provide to the client; and (iii) provides a list of the specific duties of a standard agent.

However, service level disclosures have sometimes been a normal aspect of the contractual terms of all real estate brokers. Practicality dictates the need to outline the scope of services provided in order to create any kind of listing agreement. Therefore, in some jurisdictions, both full service and limited service brokers have described the services they are providing. Over the years even full service brokers have offered various service options such as "agency listings" and, in some states, "open listings".

These alternative service options existed long before flat fee brokers introduced them on the internet. In some cases, such services were offered to friends or relatives of real estate brokers and to institutions such a banks or investors that could find a broker to provide such options. It is the proliferation of these services on the internet that has drawn attention from the real estate industry and legislatures.

Government involvement in flat fee MLS

The United States Department of Justice Antitrust Division announced the launch of a new web site in October 2007 to "educate consumers and policymakers about the potential benefits that competition can bring to consumers of real estate brokerage services and the barriers that inhibit that competition." Among other findings, they report that new sales models can reduce consumer home sales costs "by thousands of dollars. For example, in states that allow open competition, some buyer's brokers rebate up to two-thirds of their commission to the customer, and some seller's brokers offer limited-service packages that let sellers list their homes on the local multiple listing service (MLS) for as little as a few hundred dollars." "Competition and Real Estate", includes a link to the real estate laws of each U.S. state and how they support or inhibit real estate brokerage competition.

Prior to the intervention by the DOJ, there were numerous incidents of agents attempting to boycott or otherwise dissuade sellers from potentially listing their home by using a flat fee broker. In light of the DOJ investigation, and ethical considerations by the National Association of Realtors, new agents are frequently taught the legal implications of such actions.

Interest in flat fee listing service to gain price advantages in a down market

During the housing slump in some states starting in 2007, a new interest in flat fee listing services to help gain a price advantage has occurred. By reducing the listing agent cost, property sellers have been able to reduce their price below their neighbors', thus increasing the chance of making the sale. Also, in some cases sellers may avoid the need to make a short sale.

See also

• For Sale By Owner
• Multiple Listing Service
• Real estate trends

External links

• DOJ Antitrust Division: Competition and Real Estate