Selling or buying a house can be extremely stressful. Such a major purchase by itself, combined with a physical relocation, can cause a lot of stress and even panic. Are you making the right decision? Is this the right house? Is this the right time to be doing this?
On top of having to handle these emotional, but still important concerns, you need to decide what type of representation you want to have during this significant time in your life. What type of real estate brokerage do I want to work with? What type of commission structure is better for me: flat fee vs. fixed fee vs. percentage? Is the brokerage I decide to work with going to represent me and work for me with integrity? All of these questions and concerns are important and need to be tackled.
Let’s go ahead and tackle one of these questions and focus on the different types of commission structures you might be looking at in your next real estate transaction.
What is a flat fee vs percentage fee when it comes to real estate transactions?
A traditional real estate brokerage typically makes its profits through a traditional commission structure. This means that when a traditional real estate broker lists a property for you, and it sells, you owe them a fee that is equal to a PERCENTAGE of the real estate property’s closing cost. On top of that, the typical commission that a traditional real estate broker collects is around 7%.
For example, if a house that you listed sells for $300,000, a traditional real estate brokerage will be looking to collect about $21,000 from you. Part of this commission is paid out to the selling agent, however, usually this agent (who was responsible for actually selling the house) will collect much less than half of that commission. As you can see, these commissions can really add up and become quite exorbitant.
This is why many real estate brokerages are starting to employ a flat fee model for their real estate listings.This is because significant profits are still possible by charging flat fees but can still save the customer a large sum of money at closing time. For example, let’s say a flat fee real estate brokerage charges a $2,500 flat fee for every house that they list. This means that no matter how expensive or cheap a house is, this real estate broker will only collect a flat $2,500.
Let’s imagine that you sold the same $300,000 house but this time with a flat fee real estate brokerage. Rather than collecting that entire $21,000 for themselves and the selling agent, they would only collect $2,500 for themselves. This amounts to a savings of $18,500 for you! Usually, the sales agent will collect a small commission of his own, separate from the flat fee, but his commission plus the flat fee to the brokerage is often vastly cheaper than the cost of doing the same business with a traditional commission structure. This type of pricing not only seems fairer to the buyer and seller but also gives the real estate brokerage the ability to attract more customers and make even more money in the long term.
Hopefully, we’ve answered your question and armed you with the right information to make a well-informed decision. If you want further clarification on commission, flat fees, fixed fees or have other questions regarding real estate, please contact us here at Housso!
Here at Housso, we charge flat fees for your listing; a practice that is leaving the old, outdated commission model in the dust where it deserves to be.