Why do seasoned flippers need to pay a sellers agent today?

[Scott Byer]

I invest in Houston, Texas. After a few flips and being forced each time to pay the, lets be honest, VERY expensive brokerage fees to gain assess to the local MLS service and for preparation of a few standard (and freely available) contract forms...in addition to the warm and fuzzy feeling you get from knowing the transaction is being executed uniformly and professionally. But come on, 6%? I understand there usually is no way around paying a buyer's agent...which can be the subject of a future post. My question is, in this modern era where MLS offers so much direct information to consumers, services for flat fee MLS listings for as low as $500, why would a seasoned flipper who knows the process and needed forms pay 3, 2, or even 1% of their investment profit to a listing agent? My last project sold for almost $600,000. At 1% the listing agent would make $6,000 to put on an open house, fill out a few forms, and post the house on MLS. No offense to agents out there, but this seriously feels like a unnecessarily expensive service for most standard real estate deals. It feels like we're all trapped in an antiquated mode of "this is how its always been done so this is how we have to do it." Has technology and services moved on enough to say that the legacy fees of realtors should be amended. 6% of a transaction for the actual services provided to the seller seems to me very unfair.

On our current two flips I was going to use a flat rate $500 shop to get the listings on MLS. I would handle all calls, contracts and showings. Then a friend and fellow investor offered to represent us for the flat rate but the situation is basically the same. This will result in a net savings of $5,500-17,500...I mean, if we aren't concerned with saving that type of money, how can we call ourselves investors? Please agents don't take this as an attack. I'm concerned with value for dollars spent. To be honest, when I read posts about the importance of hiring an agent I'm reminded of Mugatu in Zoolander, "I feel like I'm taking crazy pills!" Am I the only one that sees it this way?

[Jeshua Patrick]

Scott Byer I think this is a great question and one worth discussing. I have never used a flat fee service but have heard good and bad about it. The same can be said for agents in the commission based system also.

Quite honestly, if your seller’s agent is simply taking a few pictures with a smartphone or a cheap camera and uploading to the MLS and not much else then you need to find a different agent.

I have done multiple real estate deals with a couple different agents and consider myself fortunate to have found an agent who is well worth every penny of that 6% when it comes time to sell.

A great agent has costs too and often only gets half of that 6%. My agent does several things which make him stand out. He hires a professional photographer who understands how to shoot houses for maximum effect. He pays to advertise on multiple listing platforms. He does more research than competing agents to gain a better understanding of true market value. Lastly, he is extremely honest. As a result, if you take his advice, you will often sell quickly at top dollar.

One major advantage I see of a commission based system over a flat fee is incentive. You want a property to have the maximum exposure and you want agents to WANT to show your property. Agents often spend a significant amount of time with potential buyers before the buyers make a commitment. I have talked to agents who have showed buyers 40-100+ houses before they bought.

$500 might buy you a professional photo shoot and a little advertising but it won’t get you anything else. If agents won’t show your property then what good does it do you? Do you think a buyer is really going to protest too loudly when they discover that buying your flat fee property might potentially cost them thousands more in representation than a similar commission based property? Also, agents often carry insurance to protect against errors and omissions. Do you want the liability of a mistake you make on a contract coming back to you in court?

I’m not saying that there isn’t a time and place for saving on realtor’s fees but remember, time is money. Is it worth potentially paying extra in holding costs to save on commissions?