Real Estate Lingo: Traditional, Discount, Flat Fee and Hybrid

The Home Seller’s Dilemma

Home sellers have never had so many options when it comes to how to sell. In the past, traditional real estate brokers and firms were the go-to for nearly all home sellers. These full-service real estate firms do everything for the home seller, but it comes at a price. In the more recent past, increasingly more people opt to sell their own homes the For Sale by Owner (FSBO) route. FSBO offered zero support, but home sellers got to avoid commissions and often sold their homes for more money than through the traditional route.

This set up a dilemma for home sellers: pay handsomely to have a firm do it all or keep that money and do it all alone. Thankfully, FSBO has grown up a bit over the past several years. Thanks to technology, FSBO isn’t as scary as it used to be. Now, home sellers have choices to make even after they choose to go with FSBO. We’ll break it down for you so you know all of your options and can make an educated decision based on what works best for you.

Traditional Real Estate Route

A traditional real estate firm will offer a home seller every service necessary to sell their home. This includes:

• Evaluating the home, property, neighborhood and market data to determine a fair list price
• Sending and managing a photographer to photograph property and/or create a virtual tour
• Marketing the home on the Multiple Listing Service (MLS), syndicated sites (Zillow, Trulia, real estate firm’s website)
• Placing a “For Sale” sign in yard
• Placing a key lockbox outside home
• Creating marketing flyers and distributing them at firm and other real estate firms
• Advertising home on social media, real estate connections, firm’s home-buying customers
• Home staging (this service is not always offered, but is becoming more popular)
• Advertising and facilitating an open house (or multiple open houses)
• Scheduling and showing the home to potential buyers
• Following up with buyer’s agents after a showing for feedback
• Managing buyer and agent inquiries
• Handling contract negotiations between buyers and sellers
• Coordinate home inspection and negotiate repairs
• Facilitating the transaction through the closing process

All of these services are paid for by the seller in the form of a commission. While commissions may vary, the average commission to the seller’s agent is 3% of the home sale price. But that’s not all. The seller must also pay the buyer’s agent a commission for bringing the buyer to the deal. This commission is sometimes negotiable as well but is typically another 3% of the home sale price. Both commissions are paid at closing by the seller.

Before you get too confident you can negotiate lower commissions on either or both sides, keep in mind this is the agents’ livelihood and business is business. While they may agree to a lower commission, you may jeopardize the process. A real estate agent who knows they will make less commission on your deal than all of their others may not be as incentivized to show your home. They may prefer to spend their energy on higher-return deals with other clients. This could prolong your home sale.

Working with a traditional real estate agent definitely has its perks. Home sellers barely have to lift a finger as the agent does most of the work. All you need to do is listen to your agent, make some decisions and write a few checks. For many, this full-service option is worth the 3% commission. The buyer’s agent has to be paid the other 3% commission regardless of how the home seller decides to sell their home. For others, 3% is too much to leave on the table and they opt for an alternative to sell their home without a realtor, to avoid these commissions and save a significant amount of their money.

Discount Real Estate Agent

Discount real estate agent are another option for home sellers. These brokers can offer everything a full-service program to a condensed program with only a few services. They go into the deal knowing they will work for a lower-than-average commission. The rate they are willing to charge will vary, but you can expect them to lower it from the typical 3% to 2% or even 1%. This can be a great option for home sellers who want to save thousands of dollars. If you can pay a lower commission for a full-service broker, then why would you choose anything else?

A discount real estate agent may work for a lower commission, but they have to make up that dip in revenue by increasing their volume of clients or offering only the most basic services. The more clients they work for, the less time they have to spend on you. You likely won’t get the same level of responsiveness as you would with a traditional real estate agent. That means longer wait times for callbacks and returned emails, less flexibility in scheduling open houses, showings and inspections because you’re competing for time with all of their other clients. The discount real estate broker also probably won’t have a lot of extra time to get to know you and what your goals are. Most are transactional, not relational.

There’s also the fact that most experienced real estate agents would rather make more money per transaction than to be bogged down with too many clients. That’s why most discount brokers are just getting started in the business and trying to build up their client base. Sure, they may close more deals annually and thus gain experience quickly, but unless you know where they are in that process, you may be getting a relatively “green” agent.

Flat-fee Real Estate Agent or Flat-fee Broker

A flat-fee real estate agent is similar to a discount broker in that they typically charge less than the 3% commission, however, they are paid completely different. Instead of getting paid at closing, they charge an upfront flat fee when they are hired. This can be beneficial to home sellers who want to know on the outset how much they will be out of pocket.

Flat-fee real estate agents come in different variations. Some work strictly with FSBO clients and the flat fee they charge only pays for the home seller to gain access to the MLS. This option is often referred to as “flat-fee MLS.” Without an agent as the middleman, home sellers cannot list their homes on the MLS and studies show that homes sell faster when on the MLS. It’s the number one way to market your home because it’s where every agent and most home buyers go to search for properties on the market.

Related: How to Get the Most out of Flat Fee MLS

In this situation, you would have to do all of the other tasks related to selling a home – all of the pricing, marketing, showings, photos, signage, negotiations, coordinating, etc. Keep in mind that while you may save money with the broker going this route, you will have to pay out of pocket for many of these chores unless you have the expertise. You may have to hire a professional photographer; a graphic designer; and a printing company to print the flyers, brochures and yard sign.

Other flat-fee brokers will do more for the home seller, but at a price. The flat fee they charge is dependent upon how much work you ask them to do. For many home sellers, this unknown fee model is too unpredictable and must be micromanaged. For others, it offers them the ability to pay for only the services they feel they need.

Hybrid Approach

The final option for home sellers is a hybrid approach. Understanding that most home sellers want to keep more of their money at closing and many prefer to have just-right support throughout the FSBO process, ListingSpark developed this alternative.

Related: How to Sell a House by Owner: 2 Options

ListingSpark combines the best of all three approaches: traditional real estate, flat-fee broker and discount broker – to give home sellers more of what they want and less of what they don’t. Home sellers pay only dollars a day for the service, from the day they list their home until the day it closes. The pay-per-day model means you pay only for the days your property is on the market. The faster it sells, the less money you pay.

But it’s not all about money. Many home sellers don’t have the time or desire to put the amount of work and time into selling their home the FSBO route. They want to save on commissions but need a little or a lot of help selling. That’s part of the beauty of the hybrid approach.

Here’s what you get for that low daily rate:

• MLS access to list your home
• Syndication across hundreds of real estate sites, such as Zillow and Trulia
• Professional photographer sent to your home for photos and/or virtual tour
• Home pricing tool with market data, such as recent pending and sold comps
• Social media sharing
• Professional yard sign
• Digital lockbox
• Text notification of showings to approve or reject
• Showing feedback
• Online dashboard to keep track of all activity
• Agent support to answer questions

If you decide you need even more support at any point along the FSBO journey, ListingSpark offers you the option to hire a dedicated agent at a low fee who will walk by your side every step of the way for as long as you need them. And if you determine FSBO just isn’t for you, ListingSpark has traditional, full-service agents available for a 1% commission.

ListingSpark is a unique, hybrid option that should be considered by any home seller. It offers clients the ability to choose their level of service and still keep more of their money at closing than other options. While the other options have their pros and cons, the tiered service approach can be an attractive alternative.