There are four main options to consider when selling a home: Local full-service brokerage, For Sale by Owner, Discount Real Estate Brokerage, and iBuyer.
There are five main options to consider when selling a home.
Please note that the term listing agent refers to the agent representing the seller and the buyer agent refers to the agent representing the buyer.
Full Fee, Full-Service Brokerage
Hiring a full-fee full-service broker is the most expensive option and is how most people sell their homes. However, with almost 1 in 100 adults having a real estate license, the level of service and results can vary widely.
Because most people cannot discern the difference between one licensee over another, they often engage a friend, family member without comparing experience, level of service, or commissions to help them sell their home.
Once hired, the full fee agent takes over to list the home in the Multiple Listing Service (MLS), handles buyer agent inquiries, represents you in all negotiations, manages the paperwork, and assists with completing mandatory legal disclosures, and coordinates the details of escrow and title.
The national real estate commission average in the United States is 5.4%. In a typical real estate transaction, that 5.4% commission is split 50/50 between the listing agent and the buyer's agent. In other words, each agent would receive 2.7% of the sale price paid by the seller at the close of escrow.
So, for example, if the home sells for $600,000, using the 5.4% average commission, a total of $32,400 will be split between the listing and buyer agent. In another example, if a home sells for $1,000,000, the listing and buyer agents would share a commission of $54,000. Thus, the commission on the $1,000,000 is $21,600 more, even though it probably takes the same amount of time, money, and effort to sell the $1,000,000 home.
Discount Full-Service Broker
Discount brokers typically offer the same service as full-fee brokers but at a lower commission percentage.
When using a discount broker, the commissions vary widely. As a result, sellers might find options ranging from .5% to 2% of the sale price. However, it is essential to note that this is only on the seller agent side, and they will still pay the average buyer's agent commission of 2.7%.
Using an example with a discount commission of 1.5% for the listing agent and the average of 2.7% to the buyer's agent, the total commission paid by the seller would be 4.2% versus the 5.4% average, a savings of 1.2%. This savings can be meaningful and represents a cash savings of $7200 on a $600,000 and $12,000 on a $1,000,000 home.
Like full-fee, full-service brokers, the range of experience and service levels for discount brokers can vary widely, and the quality of service may be very different from a broker charging .5% than one charging 2%.
With any significant decision, it is crucial to understand any limitations of service and to check Zillow references to assess the quality of the service and results.
Set Fee or Flat Fee Broker
Set-fee and flat-fee brokers (the terms are interchangeable) typically offer the same service as full-fee, full-service brokers but charge a fixed fee for their services versus a commission percentage based on the house's sale price.
The flat fee business model was conceived as an alternative to percentage-based commissions that charge more based on the price of the house. The concept is that, in most cases, if it takes the same amount of time, money, and effort to sell a $600,000 house as it does to sell a $1,000,000 house, why does the seller of the million-dollar house have to pay almost twice as much to sell their home?
So instead of the $600,000 seller paying the average commission of $32,400 and the $1,000,000 seller paying $54,000, a flat fee broker would charge the same set fee to sell both houses.
Like with commission-based brokers, the range of set fees charged by flat fee brokers can be as low as $3000 or as high as $15,000, but the point is that they do not change based on the sale price of the house. In addition, these fees are not inclusive of buyer agent commissions which would still need to be factored in.
Someone choosing a flat fee broker for $5000 must still offer a buyer agent commission. For example, if the seller chose to offer 2.5% to a buyer's agent, the total commission would be $5000 plus 2.5% of the sale price, regardless of the price of the house.
Using this example, a home selling for $600,000 would cost $21,200 in total compensation versus the average commission of $32,400. A savings of $11,200 versus a full fee, full-service agent. A $1,000,000 seller would save $24,000 in commissions.
Though the level of experience and results can vary from one flat fee broker to another, the level of service and quality of results is similar to those of a full fee, full-service broker.
There are two reasons for this:
- Technology has dramatically improved the time, money, and effort needed to list and sell a home! Set fee brokers have just figured out how much it costs to sell a home and added a fair profit when setting their fees. They have passed the savings on to their clients versus keeping it for themselves, just because they can.
- Flat fee brokerages tend to use a team approach versus a local brokerage with one agent to one seller. With specialists handling different components like marketing, negotiations, and compliance, the process goes faster, and there are fewer errors and being more cost-effective.
For Sale By Owner
8% of homes are sold For Sale By Owner (FSBO). For Sale By Owner is the process of selling a property without broker representation. Sellers typically choose to sell their home on their own to avoid paying a broker commission for the transaction.
The home seller choosing this option will handle all of the negotiations, paperwork, legal disclosures, contingency removals, contract disputes, escrow, and title.
Though FSBO sellers do not pay an agent to represent them, they typically offer a commission of 2.5% to 3% of the sale price to the agent that brings them a buyer. So, for example, if the seller offers a 2.5% commission and the home sells for $600,000, the buyer agent would earn a $15,000 commission, but there would be no listing or seller commission.
While saving more money in commissions, there are some drawbacks as statistics show that homes sold by owner sell for 11% less than agent-represented transactions and have more issues resulting from incorrect legal disclosures and contract disputes.
iBuyers (The i stands for instant) are real estate companies or investors that buy properties at a discount directly from home sellers and resell them for a profit to home buyers.
Theoretically, iBuyers cut out the need for hiring a real estate agent to market and sell the home. While this may save time and effort, the downside of selling to an iBuyer is that the seller will net an estimated 12%-18% less on the sale of their home.
In this scenario, a $600,000 home sold to an iBuyer would sell between $492,000-$528,000, but there would be no commissions and no lengthy sales process.