One realty company in Detroit has announced a new program to spark existing home sales. Budget Realty, LLC will be offering a flat-fee listing service of $999.00, to be pre-paid. The listing services will include:
 

• Marketing of the property
   
• Multiple listing service
   
• E-mail distribution to their buyer list
  
   
• Presentation of offers and counter offers
   
• Assistance in developing and negotiating transactions
   
• After purchase agreement acceptance, order title commitment
   
• Monitor buyer funding progress
   
• Estimate of transaction costs and proceeds
   
• Furnish advance closing documents to advise parties on closing requirements
   

The flat-fee covers listing and marketing services only. The seller will still be required to pay their own closing costs and a three percent commission to the selling broker.

One of the real estate agents with Budget Realty indicated that there is concern that this will upset traditional Realtors because it will be "major work with very small pay." However, they expect the move to "turn the market and save the equity in homes in Michigan."

In my opinion, the Realtor commissions are much too high and that is likely having a chilling effect on existing home sales. As I pointed out in 'Blame It On The Weather,' homeowners have spent all of their equity, so they can't afford to sell their homes. The Realtor commissions were not an issue when home prices were rising dramatically year after year, but that has changed as well. Existing home prices have been declining for eight straight months, last reported to be $217,000.

I am not saying that real estate agents are getting rich, though some are most certainly over compensated. The majority of Realtors I know cannot make a living selling real estate - they have "other" jobs. Despite the fact that most Realtors have to have second jobs, there are still more than 1.2 Million Realtors. This is a clear sign that the commissions are too high.
 

Becoming a Realtor is simple, you just have to take a few courses at your local community college. Many are enticed into the profession because they see that they can make more money selling one home than they make in a several months at their "other job." For example, if a Realtor gets a $500,000 listing and sells that home, they get half of the six percent commission - $15,000!

The problem is that there is so much competition that those sales are few and far between. Now that home sales are slowing down, the market cannot support the glut of Realtors. So what effect will the flat-fee have on Realtors? It should thin the herd, an industry that is not as profitable should see a reduction in work force. But, only time will tell. Perhaps the enticement of that one big sale will keep them hanging in there.

The flat-fee concept is nothing new. Several new realty companies have popped up over the past few years offering "a la carte" type services. They offer a hybrid of for-sale-by-owner (FSBO) and a traditional services that allows the owner to decide how much service they want. They can opt for advertising only, multiple-listing service (MLS) listings, or full-service brokerage services.

Though the excessive commissions are only one factor contributing to the stagnating market, it does need to be addressed. Is there any more work involved in selling a $100,000 home than a $500,000 home? Why should it cost $24,000 more to sell the $500,000 home?

As I wrote in 'The Six Percent,' the reason that the Realtors can get the six percent commission is because they have the largest professional association in the country, the National Association of Realtors. However, even this is not going to protect them in such a down market. Homeowners, especially those who are more sophisticated with more expensive homes, are realizing that they can do a lot of marketing, and even hire an attorney to handle the legalities of a real estate transaction, for far less than $24,000. These flat-fee concepts are nothing more than a realization that if they don't do something, they are going to lose out on a very lucrative sector of their business to a growing FSBO market.

I applaud Budget Realty for a shrewd marketing move. At least they can offer a more attractive alternative to a more savvy home-seller, and if they sell the listing, they still get three percent (I assume). And, if they don't sell it, at least they brought in $999 that they wouldn't have otherwise made.

Robert A. Franco
SOURCE OF TITLE
rfranco@sourceoftitle.com