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For Sale By Owner v. Flat Fee MLS

November 21st, 2009

Has the MLS gone brokerless? To properly understand this concept, one needs to be aware of the differences between a home advertised as a For Sale By Owner property and one placed on the MLS for a flat fee.

For Sale By Owner, or FSBO , is known as the process of selling real estate without the representation of a real estate broker or agent. Homeowners market their own property and represent themselves, usually with the help of a lawyer.

Flat fee MLS, or limited service MLS, refers to a practice whereby real estate brokers place pertinent information about real property for sale into a database called the MLS (Multiple Listing Service) and charge a specific dollar amount as opposed to a commission based on the sales price of the property. This essentially wipes out the listing brokerage commission as it is replaced with a flat fee paid to the listing broker.

Flat Fee MLS is simply a merger between full service real estate brokerage and for sale by owner, creating a hybrid vehicle which essentially reduces MLS fees and contractual risks associated with using a full service brokerage firm (i.e., liability with respect to commissions paid out and contractual concerns regarding when and how to market the real property). As a result, flat-fee sellers are not committed to paying a cooperating brokerage fee and are able to advertise their homes on a for sale by owner basis.

The arrangement, however, between the real estate broker and the property owner (”seller”) typically requires that the parties enter into an exclusive-agency listing agreement, a listing contract under which the owner appoints a real estate broker as his or her exclusive agent for a designated period of time to sell the property, on the owner’s stated terms. The seller reserves the right to sell without paying a cooperating brokerage fee if he or she sells to a prospect (buyer) who has not been introduced or claimed by a broker/mls member participant. This essentially reduces contractual risks between the seller and the listing broker, as the seller is free to sell (or otherwise transfer title to the real property) to any person procured by the seller (i.e. someone who is not represented by a “Buyer’s Broker”) without having to pay a brokerage commission or penalty. The net effect is to limit brokerage services provided, thereby giving the seller greater control and flexibility at significantly reduced costs.

The downside to using a for sale by owner/fee for service (or flat fee MLS listing service) business model is that the seller must represent himself in the sale of his property. It is for this reason that Flat fee Listings may not be suitable for everyone. The seller might wish to seek competent, qualified legal advice when attempting to sell real property using a flat fee MLS listing service.

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