Flat fee MLS

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Flat fee MLS (sometimes referred to as "flat rate mls" or "fixed fee mls") refers to the practice in the real estate industry of placing pertinent information about a property for sale into the database of the local Multiple Listing Service (MLS) for a set fee or dollar amount 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 enter the property into the MLS and calls for the seller to pay the broker a flat fee for the service. The net effect is to make the real estate industry's standard MLS available as a marketing tool to house sellers without the necessity of the seller purchasing a package of other services from the real estate agent.

This service is typically much cheaper than using a traditional real estate listing contract. The listing fee for a "flat fee MLS" can range anywhere from $200-$500, depending on the area, while traditional brokers charge a total of 4% to 7% of the selling price of the property, that amount typically being split between two brokers involved in the transaction or two agents/brokers from the same company. However, in all cases where the property is "listed" in an MLS when using a fixed fee service, the seller must still offer a "Buyer's Agent Commission", typically 2.5% to 3% of the selling price paid to a co-operating broker who brings a buyer. However, the commission which is normally paid to "listing" broker is eliminated by payment of the flat fee. The savings can be substantial.

The term "flat fee MLS" is also used to describe the service and fee structure provided by real estate brokers and agents who offer real estate services on "limited service" basis rather than as part of a bundled suite of services provided in the traditional, full service model. Since the seller is paying only and specifically for a listing in the MLS, the seller often takes responsibility for the other services typically provided by a full service real estate broker and is, in many respects, selling the property as a For Sale By Owner (FSBO). 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.

Many fixed fee services also offer contractual terms that permits the seller to advertise as a For Sale By Owner (FSBO) seller. Therefore, if the sellers finds their own buyer, even the buyer's agent commission is eliminated.

Other advantages for the seller may include the option to cancel the listing at anytime and take it elsewhere in addition to not requiring that a seller be locked into a contract for a minimum amount of time.

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.

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 services such as an attorney or title company to handle closing. Some companies offer "limited representation" by the real estate broker, which include basic information to help sell the property. Because of this, flat fee listings may not be the best choice for the beginner.

Contents

[edit] 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%.[1]

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 a downward pressure on real estate fees in the United States.

[edit] Issues affecting the fee-for-service brokerage

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,[2] such as Texas,[3] 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.[4]

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.

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. Virginia is one state that has 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.[5]

There is a growing number of companies offering flat fee MLS service, many of which can be regarded simply as "referral companies". They operate by collecting the fee upfront and then referring a seller to a local agent. One downside to this method is the seller may not know exactly what he is paying for.

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.[6] 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).

[edit] See also

[edit] References

  1. ^ Darlin, Damon. "The Last Stand of the 6-Percenters?", New York Times, 2006-09-03. Retrieved on 2006-10-10.
  2. ^ States with minimum-service rules for real estate sales. Retrieved on 2007-03-26.
  3. ^ department of Justice and Federal Trade Commission Urge Texas Real Estate Commission to Continue to Allow Flexibility in Brokerage Services (2005-04-21). Retrieved on 2007-03-26.
  4. ^ Justice Department Encourages the New Mexico Real Estate Commission to Maintain Consumer Choice in Real Estate Brokerage Services (2006-11-02). Retrieved on 2007-03-26.
  5. ^ Code of Virginia: Real Estate Brokers, Sales Persons and Rental Location Agents. Retrieved on 2007-03-26.
  6. ^ Waldie, Paul (2006-11-30). Online turf war claims discount real estate broker. Globe and Mail. Retrieved on 2007-03-26.

[edit] External links

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[edit] General Information on Flat Fee MLS

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