Flat-fee MLS: Wikis

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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 remove responsibility from the listing agency and make the real estate industry's standard MLS available as a marketing tool in exchange for a reduced cost.

This service is typically much differently than using a traditional real estate listing contract. The listing fee for a "flat fee MLS" can range anywhere from $200-$800 plus 2.5% to 3% for a "Buyer's Agent Commission", paid to a co-operating broker who brings a buyer. However, the commission which is normally paid to "listing" broker is replaced by payment of the flat fee. Depending on the area, while traditional brokers charge a total of 4% to 6% 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.

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Variations and types of limited service

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 takes full 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). The "flat fee MLS" company typically does not assist in any of the contract preparations, or assist in any way other than entering the property into the "MLS" system. 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 permit the seller to advertise as a For Sale By Owner (FSBO) seller. Therefore, if the seller finds his 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.

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. In any case, both flat fee (limited service) and traditional full service brokers normally advise clients to seek qualified legal advice regarding their real estate transactions.

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]

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. [2]

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[3]. 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." [4] 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.[5]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.

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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,[6] such as Texas,[7] 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.[8]

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 taking 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[9] and Virginia[10] 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."[11] "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 incidentsof 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

References

  1. ^ Darlin, Damon (2006-09-03). "The Last Stand of the 6-Percenters?". New York Times. http://www.nytimes.com/2006/09/03/business/yourmoney/03real.html?ex=1314936000&en=0be493bd5738880e&ei=5088&partner=rssnyt&emc=rss. Retrieved 2006-10-10.  
  2. ^ Dubner, Stephen J. (2006-03-05). "Endangered Species". New York Times Magazine. http://www.nytimes.com/2006/03/05/magazine/305wwln_freakonomics.1.html?ex=1299214800&en=9e574718ff5a40eb&ei=5088&partner=rssnyt&emc=rss. Retrieved 2007-05-02.  
  3. ^ "Real Estate Commissions Shrinking" from NPR's Morning Edition, 14 April 2006 (retrieved 8 April 2007)
  4. ^ Nadel, Mark S.. "A Critical Assessment of the Standard, Traditional, Residential Real Estate Broker Commission Rate Structure". Publication no. 06-28,: 2. http://ssrn.com/abstract=942348. Retrieved 2007-02-27.  
  5. ^ Waldie, Paul (2006-11-30). ""Online turf war claims discount real estate broker"". Globe and Mail, Toronto. http://www.theglobeandmail.com/servlet/story/LAC.20061130.RREAL30/TPStory/Business. Retrieved 2007-03-26.  
  6. ^ "States with minimum-service rules for real estate sales". http://www.bankrate.com/brm/news/real-estate/20060406b1.asp. Retrieved 2007-03-26.  
  7. ^ ""Department of Justice and Federal Trade Commission Urge Texas Real Estate Commission to Continue to Allow Flexibility in Brokerage Services", DOJ press release". 2005-04-21. http://www.usdoj.gov/atr/public/press_releases/2005/208653.htm. Retrieved 2007-03-26.  
  8. ^ ""Justice Department Encourages the New Mexico Real Estate Commission to Maintain Consumer Choice in Real Estate Brokerage Services", DOJ press release". 2006-11-02. http://www.usdoj.gov/atr/public/press_releases/2005/212655.htm. Retrieved 2007-03-26.  
  9. ^ "Waiver of Duties Statement Ohio Department of Commerce Division of Real Estate and Professional Licensing". http://web.archive.org/web/20061206020740/http://www.com.state.oh.us/real/documents/Waiver_of_Duties_Statement.pdf. Retrieved 2008-03-18.  
  10. ^ "Code of Virginia: Real Estate Brokers, Sales Persons and Rental Location Agents, "Limited service representative, contract disclosure required" portion of the law". http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+54.1-2138.1. Retrieved 2007-03-26.  
  11. ^ ""Antitrust Division Launches Web Site on Competition in the Real Estate Brokerage Industry", DOJ Press Release, 10 October 2007". http://www.usdoj.gov/atr/public/press_releases/2007/226685.htm. Retrieved 2007-10-17.  

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