When you're in the middle of selling a house, paying a 6 percent commission to a real estate agent doesn't sound like a lot -- until you sit down and do the math, or wait until the settlement statement arrives. Paying 6 percent on a $500,000 home sale is $30,000, which could pay for college tuition or a kitchen remodel. Some real estate agents are leading a slow move away from commissions, with flat fees and hourly rates that still provide the same services any Realtor would.
These are different payment options beyond negotiating a lower commission with your agent or selling the home yourself and listing it "for sale by owner," or FSBO, though those methods are also%VIRTUAL-pullquote-"The Realtor's task is virtually the same, regardless of the price of the house." % becoming more popular. New York City, for example, saw a 30 percent increase in FSBO listings in 2013 as more people took a do-it-yourself attitude and showed their homes themselves, among other related tasks in selling a home. With the Internet allowing more sellers to lay the groundwork themselves, some people are comfortable selling their home. But for people who still want the full services of a real estate agent, there are two ways that are slowly catching on.
Hourly Rate: If you've never bought a home before, it's interesting to know that only sellers pay a commission in a home transaction, and the commission is the same no matter what price the home sells at. Brokers selling a house typically collect a commission of 3 percent of the purchase price, and the other 3 percent goes to the buyer's broker.
Real estate agent Mark Hawkins of Long Beach, Calif., says that many home sellers, especially those with expensive homes, don't understand why an agent should be paid more for selling a $1 million home than a $500,000 home. "The Realtor's task is virtually the same, regardless of the price of the house," Hawkins says.
Hawkins charges per hour: $125 for some services and $250 hourly for others. His fee averages $6,000, compared to more than double that for commission sales. "I'm only going to charge you for what I actually work," he says.
To keep his fee low, homeowners pay out-of-pocket expenses -- such as for a photographer -- directly to the service provider. If they want to hire a string quartet to play poolside at their open house, the owners pay the musicians. Hawkins (pictured at right) can find and hire a professional photographer to take photos of the house, and he charges $125 per hour for that and other tasks that sellers can do, such as printing.
For fiduciary tasks that he has to perform as a licensed real estate agent, he charges $250 per hour. It's all itemized on his final bill. He caps his rate at 5 to 6 percent of the home's selling price.
In a seller's market, it's amazing how little time can be required to sell a home, he says. On his website, he has examples of homes selling after an estimated six to 20 hours of work by an agent, equating to $833 to $1,587 per hour for agents working on commissions.
"I'm challenging the marketplace," Hawkins says. "I'm challenging the industry. I'm challenging the model that was born eons ago."
Flat Fee: Another option to commissions is a flat-rate fee. DC Home Buzz in Washington, D.C., charges a flat fee of $9,900 as a listing agent for homes sold for $400,000 or more. A seller's agent working on a 3 percent commission would receive $12,000 on a $400,000 home sale.
The average home transaction by owner Atieno Williams' brokers is $523,000, Williams says. The flat fee equates to about $5,000 less. Since changing her business to a flat fee in early 2013, increased volume has more than made up for the higher commissions her office would have received, says Williams (pictured above and in the video below with her "team of rivals").
"It has been more profitable, particularly because we've been able to triple our listings," Williams says.
It's a full-service agency, providing the same services -- and more, Williams says -- that commission-based real estate agents provide. "We do the hand-holding from the very beginning to the end," she says.
Charging an hourly rate was considered when Williams looked into no longer charging commissions, she says, but a flat fee made more sense. DC Home Buzz spends approximately 50 hours selling a home: 15 hours for a listing specialist, five to 10 hours for a stager, 15 hours of administrative time, and 10 hours of marketing. Those 50 hours equate to $198 an hour in the $9,900 flat fee.
In an industry that has taken a long time to adapt to even going online, and doesn't always have a stellar reputation, real estate agents who leave commissions behind may someday be the norm.
"There's a perception that doesn't put us much higher than a used car salesman," Hawkins says.
New payment systems could change that.