My middle-class neighborhood of three and four-bedroom homes is transitioning from empty nest, older owners to the next generation beginning their families. The question of real estate listing fees is a source of confusion for home buyers and seller, young and old, especially with the variety of real estate commission models available.
How much are traditional real estate listing fees?
When do you pay your agent?
Are there alternatives to the traditional listing model?
Should you even pay a listing fee?
Let’s dig into each of these questions a little deeper and explain your best options for selling a homes and listing on the MLS.
Exploring 1% vs. Full 3% Commission Models
The traditional commission arrangement for home sales has been a seller/agent negotiated percentage of the home price. Typically, the average commission is 6% to be shared by two 3% commission realtors, one representing the buyer and the second representing the buyer.
Each real estate agent provides a variety of services for their fee. These services can include pricing a home, advertising on a home listing service, communications between buyer and seller, and facilitation of the closing when the title of ownership and payment are exchanged.
However, some brokers offer less service at a discount, while others offer the same service at a lower price.
In recent years, new commission models have appeared that offer lower fees and a menu of included services:
The Flat Fee Agent Model
Some real estate agents may offer to assist a homeowner with a sale for a flat fee – a fixed dollar amount – typically less than the traditional real estate commission. In some cases, the realtor provides only those services negotiated in the fee arrangement and nothing more. If the realtor’s sole obligation is to list the property on MLS com, a popular home advertising service, a completed transaction may not be necessary to earn the fee.
The Discount Agent Model
Commissions may be discounted to attract customers. A Canadian real estate agent advertises a 2% rate, while another offers a “flex fee” – 2% if the homeowner finds the buyer unaided or 6% if not.
Companies like Clever Real Estate and Redfin can provide full slate of real estate services for a 1% listing fee. A 1% real estate agent doesn’t profit by cutting the quality of their representation but increasing sales volume. Advances in the internet and a hot market have allowed brokerages to offer amazing services at a lower rate.
Like most activities, success begets success. As the number of satisfied clients grow, the universe of potential clients also increases.
Don’t Compromise on Service. Work With the Best Agents at a Discount
Our friends at Clever Real Estate negotiate with top-performing agents so you don’t have to. Start saving thousands today.
The “A la Carte” Listing Model
Sometimes called “pay for service,” homeowners can elect to purchase individual services such as multiple listing, yard signs, fliers, home staging, and closing assistance from a menu of prices.
SoloPro, one of the first real estate companies to offer separate services for a fee, failed in 2016.
“The No Fee” Model
Zillow listing fees are non-existent, i.e., the company charges nothing to list a house on its massive database.
Aimed at those who intend to sell their homes by themselves (FSBO), the company offers no additional services to homeowners.
Note that sellers typically still pay the 3% commission to a buyer’s agent if the buyer brings one to the table.
The real estate commission rate is not fixed, but the trend to lower rates is apparent. Just as the traditional leadership of Wall Street was shaken by the appearance of discount stockbrokers, traditional models of real estate firms and agents are evolving today.
Should I Use a 1% Realty Service?
Potential 1% Listing Cost Savings
The median sales price in my neighborhood today is $656,000. After paying a traditional real estate commission (6%) of $39,360 and estimated closing expenses of $13,200, my neighbor will have $603,440.
Had he used a 1% listing fee, his net proceeds would be $616.560, a gain in his pocket of more than $13,000.
Here’s what the 6% traditional listing fee calculations look like:
3% buyer’s agent commission + 3% seller’s agent commission = 6% commission fee x $656,000 = $39,360 in fees.
Compare that with the 1% listing fee calculations:
3% buyer’s agent commission + 1% seller’s agent commission = 4% commission fee x $656,000 = $26,240 in fees, saving over $13,000.
These calculations assume that the seller’s agent receives a 1% commission while the buyer’s agent receives a 3% traditional commission.
Most states do not allow the same agent to represent both buyer and seller.
However, if the buyer and the seller were each represented by a 1% real estate agent. The net proceeds to the seller would be more than $26,000 ($13,000 from each agent).
Pros and Cons of a 1% Realty Service
Most people are suspicious of prices below the “norm.” We are tutored to believe that “You get what you pay for,” and high prices equate to quality. Our natural assumption is that corners have been cut in order to offer a low price. Fortunately for consumers, the adage is not always true.
Why should we expect the norm when we’re living in a time of unprecedented connection where a real estate investor in Dubai can purchase your San Francisco flat with a few clicks of a button?
Retailers like Amazon, Walmart, and Costco regularly offer the same consumer products as local retailers, but at lower prices. They have the advantage of scale, being able to allocate their fixed costs over a larger sales base.
Real estate agents operate under the same principle. According to one study, the median income for an agent in the United States as of 2020 was $42,246 while the top ten percent earned $64,198, more than 50% more.
A top sales agent can earn $500,000 or more. The average agent sells less than ten homes each year, while top producers close fifty or more sales each year.
The truth is, being a real estate agent is a volume game. If you can’t get enough clients and navigate the new online marketing and lead generating tools available, you won’t be successful in this business. Top agents understand this and are willing to work under different models: They care about securing as many clients as possible and delighting them so they refer them to their friends and family.
The best 1% real estate agents are top-rated, full-service, and employed by a major real estate firm, such as Clever Real Estate. With their reputations for world-class service, the most successful agents focus on closing transactions, not searching for new clients. Top agents need clients to maintain those kinds of numbers, and discount referral services like Clever offer a steady stream of customers. For volume-based agents, it’s a chance for increased branding and a source of consistent leads (assuming they perform to Clever’s standards).
Do all 1% realtors offer full service and client satisfaction?
Unfortunately, there are agencies who do trim services and disregard client satisfaction to offer the low commissions. For some, it is an opportunity to “bait and switch,” attracting potential sellers with the intention of upselling more benefits or a premium service for a higher commission rate. Before selecting a real estate agent for your house sale, do your due diligence on the firm and the agent before signing a listing contract.
A Comparison Between Realtors with 1% Listing Fees
Two of the better known 1% real estate listing agents are Redfin and Clever Real Estate:
Redfin 1% Listing Agents
The Seattle-based real estate brokerage company, with over 1500 agents at the end of 2019, charges 1% to 1.5% to sell a home plus an additional 1% if the buyer does not have a real estate agent. The company collects a fee of 1.5% of the transaction price on sale.
If the seller subsequently repurchases a home with a Redfin agent within 365 days of the original sale, the company rebates one-third (.5%) of the fee collected on the earlier sale.
Buyers pay a minimum agent commission equal of the greater of $6500 or 1% of the list price. In states where rebates are legal and approved by the lender, Redfin may refund an undermined portion of the commission paid by the seller to the Redfin buyer.
Transactions completed through a partner agent – agents registered with a different brokerage firm – are not eligible for refunds or limited to the 1%-1.5% listing fee.
On April 4, 2020, ConsumersAffairs.com assigned two stars in a five star rating system for overall satisfaction ratings.
One client – Pat of Fairfax – complained, “The listings are inaccurate. For example, prices, details, pictures are a way of date, especially for homes not currently listed.”
Gail of Sykesville, Maryland, added, “Using Redfin only works if your house can sell itself.”
On the other hand, J of Falls Church, Virginia, wrote, “Anthony followed through in every process to the last detail, and ensured everything was addressed and resolved in a timely manner.“
Trustpilot, another reviewing site, had only two reviews posted for the company: Naomi Vasques ( a 5-star review) stated the company was “very informative in the process of purchasing a home” while Diana (1-star review) wrote “I am filling a complaint with the Arizona Realtor Board, with the Attorney General Office for discrimination, and the Disability Act of Arizona.”
Clearly Redfin is a mixed bag: Some customers are disappointed, while others are happy to receive an agent at a discounted rate.
Clever Real Estate Reviews
Named as one of the 2020 Best Tech Startups in St. Louis, Missouri, Clever Real Estate was founded in 2017 to connect homeowners with local top-rated, full-service real estate agents (“partner agents”) for a sales commission equal to the lesser of 1% of the sales price or $3,000. According to Crunchbase, the company has 2,000 agents in its Partner Network, all from major national residential realtors or dominant, well-respected regional firms.
The real estate services provided are not delivered by Clever, but through its Partner Agents. Unlike Redfin which employs in-house agents, the company’s ability to control the sales network is limited to removal of the agent’s access to the company clients. Clever recognizes that compatibility and confidence are essential in a client/agent relationship and encourages clients to do a thorough due diligence before listing their home with a specific agent.
While Clever is not reviewed by ConsumerAffairs.com, the company has been given a 5-star rating by Trustpilot with 90% of the 366 reviews rating the company “excellent.” During a ten-day period in March 2020, James L wrote “The whole process was amazing, and I’d do it again tomorrow!” while Ronald V. Rondeau assessed the experience with Clever to be “All professional, honest, and sincere. Very good experience.”
Final Thoughts
The 1% real estate model is here to stay. Consumers always seek the greatest value for their dollars. An agent providing full service at 1% has a distinct sales advantage of the 3% commission broker offering similar service. As lower rates become entrenched in the industry, the number of brokerage firms and agents will shrink as marginal brokers can no longer survive.
Residential real estate commissions will continue to drop as new technology supports the fragmentation of the old brokerage systems. Competition is likely to increase among realtors, especially by firms like Clever Real Estate who can link specialists and harness the capabilities of big data and artificial intelligence to supply brokerage services. In the end, the home sellers and buyers benefit.
Don’t Compromise on Service. Work With the Best Agents at a Discount
Our friends at Clever Real Estate negotiate with top-performing agents so you don’t have to. Start saving thousands today.
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