Thursday, July 12, 2007

Flat-Fee Listing Brokers

I was walking out of Costco over the weekend and saw something that got me thinking.  Parked right in the front of the parking lot was a vehicle advertising a flat fee listing program for $199.  What this means is that any homeowner can pay this brokerage $199 to get their home listed on the MLS.  To the "average joe" that might seem like a great deal.  Why would I pay another agent 3% of the purchase price of my home, when I can just pay $199 and get the same thing?  My arguement is that you most likely aren't going to get the same thing.

Let's just look at the business model for a second.  Let's assume that this agent/broker lives a fairly modest lifestyle and has a monthly cash outflow of $5,000 for things such as the mortgage, car payments, utilities, groceries, etc., etc.  And let's assume that he has some fairly modest business expenses as well, maybe $3,000/month.  So just to survive he/she must make about $8,000 every month.  So in order to just cover the minimum expenses he/she must find 40 new clients every month.  Think about that for minute...40 new listings every month...more than one a day!

To someone who is not familiar with what it takes to sell a home, getting the house on the MLS for $199 vs. 3% of the sales price, it's a no-brainer!  But what I don't think the general public understands is that putting the house on the MLS is just one very small piece to the puzzle that must all come together to get a home sold, especially in today's market conditions.  There is a long list of items that go along with putting the house in the MLS that contribute to obtaining a buyer for your home.

There are a couple of points that I'd like to make:

1.  First, just getting the house into the MLS is just the beginning of any decent marketing plan.  Most sales of resale homes occur due to the exposure to the MLS, but you must have the best exposure in the MLS for it to be effective.  Not only are agents looking through the MLS for the available homes for sale to show to their buyers, but the buyers themselves are viewing this material as well.  Most websites on the internet that display homes for sale are getting the information from the MLS.  So if you've got only one picture, or 6 pictures that are not displaying the home very well, that seller is going not going to capture the attention of those buyers and they will most likely move onto the next home.  My guess is that for $199 sellers are going to be getting the bare minimum.  Maybe 6 pictures, but no virtual tour, no additional internet exposure, etc., etc..

2.  Second, the customer service an agent provides to a seller shouldn't stop once the listing is entered into the MLS.  It's an ongoing process, the market needs to be analyzed continuously to ensure that prices haven't changed or new listings have come onto the MLS that now make the seller's home over-priced, or even under-priced; showings need to be followed up on to get some constructive feedback from the potential buyers and to ensure that the home is positioned properly within the market.  With 40 new listings every month, this agent cannot possibly have enough time in the day to provide the necessary customer service to his/her client.

3.  Thirdly, once the homeowner has written the check for $199, where's this agent's motivation?  He/She is motivated to get seller's to write him/her the check for $199, that's it!  When you pay an agent on a commission basis we don't get paid unless we sell your home.  And so if we aren't doing everything possible to get the seller's home sold we are just hurting ourselves.  With a flat-fee brokerage, once the check is written the seller now has no more leverage.  Where's the motivation?

I'm curious to hear some different perspecitves and opinions about flat-fee brokerages.  Feel free to leave a comment about stories you've heard or experiences you've had personally, good or bad.

-Steve Nicks

[tags] Desert Ridge real estate, Phoenix real estate, flat-fee listing brokers [/tags]