Flat Fee MLS Listing

According to a report in Inman News, former employees of Iggy’s House/Buy Side Realty report that they are about to shut their doors.  This flies in the face of reports in the same article by CEO Joseph Fox that they are just restructuring.

It would appear that freebies and loss leaders don’t always stimulate enough business to compensate for the expenses they incur.  This is not a free car wash with a tank full of gas.  Iggy’s would list a house for free on the hope that one or more of the buyers that called inquiring about their listing would buy a home through them.  Wishful thinking in the worst real estate market in 15 years.  That’s more like a tune up, brakes and a new set of tires with a tank full of gas and not only that….you don’t have to buy the gas until after you get all that stuff.  Now granted, today a tank full of gas is not cheap but unfortunately when they refund 75% of the buyer’s commission, their service was pretty cheap; so cheap in fact that it could never compensate for the free listings they gave away.

Where did Iggy’s go wrong?  Most likely their founders are to blame for having inflated egos in a deflated economy.  Joe and Avi Fox got lucky once.  They sold their online stock brokerage Web Street to ETrade and thought they could repeat their success in Real Estate.

ETrade bought webstreet for $45 million and the Fox brothers were reported to have earned $9 million each on the sale; certainly enough to live comfortably for the rest of their lives without starting a hair brain real estate model that gives away most of it’s services for nothing or next to nothing.  Then again, these are the same two guys mentioned in a 2005 press release about launching Stand-Up Comedy TV.  Iggy’s house was certainly a comedy…..of errors.

FFMLS Staff Writer

Á la carte brokers are carving out a buffer zone between selling For Sale By Owner and traditional real estate.  Do-it-yourselfers have long sought an alternative to traditional real estate.  In 2000 the term Flat Fee MLS was almost unknown. A Google search produced minimal results.  Early flat fee companies got business by targeting for sale by owner sellers.  Today that is changing.  Consumers know what flat fee mls is.  Instead of stumbling on it, they seek it out.

This would seem to model other industries.  The success of Home Depot, Lowes, Schwab, and eTrade would tend to indicate that real estate should not be any different.  There is a huge do-it-yourself sector of real estate that needs tools and à la carte brokers offer those tools; they sell the hammer but the consumer gets to swing it.

The result is that consumers are saving hundreds of millions of dollars in commission.  Real estate sales are a 60 billion dollar industry and Flat Fee MLS is 2±% of the market or about 500-600 millions dollars in saved commissions annually.  One billion dollars in annual saved commissions is in site.

Staff Writer

In 1981 the National Association of Realtors began tracking what percentage of homes sold by owner.  The number has fluctuated from a low of 13% in 1997¹ and a high of 20% in 1987¹ but the number seems to hover around a mean of 15%; hence the 85:15 ratio (Realtor Sold:Owner Sold).

The most interesting part about these figures is that there was no internet in 1981.  The Internet did not even play a role in real estate until the late 90s and when it did, the numbers did not change much.  In a seller’s market, the percentage of For Sale By Owner (FSBO) sales continued to rise and in a buyer’s market it fell.  This would tend to indicate that it’s not the medium of communication that affects the percentage of FSBOs but instead the market itself.  In other words, sellers might be more apt to try FSBO because it’s easier but not because the web makes it easier to upload a digital photo and a description but instead because the market is hot and more apt to respond to any type of posting by a seller.

What motivates a FSBO seller to be willing to try to sell without a Realtor is far more inate, however.  FSBO sellers have what one might call the do-it-yourself gene.  FSBO sellers like home projects; not just selling the home but fixing and improving the home.  It would seem that FSBO sellers are the type of people that like to shop at Lowes and Home Depot and take on projects on their own.

Years ago, the local plumbing or electrical supply house had signs….contractors only; this is their livelihood.  That was until Home Depot and Lowes began selling all the same products for less money to anyone.  A FSBO website is similar to MLS but it’s like a knock off of the real trade product.  It does not have the acceptance that MLS does because it does not reach the same people as the MLS.  This is because 85% of buyers are still going to brokers or broker websites to buy their home.  Besides the fact that 85% of the people want service, to the buyer, the perception is that the services of a buyer’s agent is free and that the service is paid for by the seller.  Buyers do not see the cost as coming off the top of the deal.  So FSBO websites have never been the real trade product and never will be.

So the system remained imperfect with the advent of the internet because the FSBO seller had no ability to buy the real trade product.  That was until Flat Fee MLS brokers began springing up around the country.  Suddenly there were brokers who would sell the formerly wholesale product, retail to the public.  Flat Fee MLS was essentially an unbundling of the materials from the labor provided by professional.

Flat Fee MLS has turned the 85:15 ratio into an 70:20:10 ratio (Traditional Realtor Sold:Flat Fee Realtor Sold:Owner Sold).  A new service level was carved out of the decades old ratio.  It’s just a sign that Real Estate is changing and will continue to change.

Staff Writer

¹Source: Home Buyer & Seller Survey Shows Rising Use of Internet, Reliance on Agents
         January 16, 2006, The National Association of Realtors
         http://www.realtor.org/press_room/news_releases/2006/hmbuyersellersurvey06

By FFMLSM Staff Writer

In 1971 Charles Schwab incorporated First Commander Corporation and in 1972 he bought out his partners and renamed it Charles Schwab and Company.  In 1974, Schwab had the good fortune of an SEC pilot program that deregulated some brokerage transactions and in 1975 the SEC mandated negotiated commissions for stock trades.  At this point most brokerages raised their fees.  Schwab in contrast started what he called a discount brokerage.

Schwab’s discount brokerage was really an unbundling of trading and advice much like Flat Fee MLS Listings are an unbundling of marketing and transaction management.  This meant that instead of Schwab supporting a force of trained advisors that demanded high pay, he could use back office staff to place the trades and investors would be free to do their own research.  For investors that wanted research and advice, he offered separate services.

To understand how this compares to Real Estate, one has to examine the different structure between the stock brokerage industry and the real estate brokerage industry.  Stock is largely national.  The National Association of Securities Dealers (NASD) is a trade group that is closely supervised by the Securities and Exchange Commission (SEC).  In contrast the National Association of Realtors (NAR) has little or no oversight.  State Real Estate Commissions have power over licensees but little power over National, State or Local trade associations.

Schwab got his start in a nationally (or even internationally) regulated medium.  Flat Fee MLS Pioneers, immediately came up against the wrath of local Realtor® associations.  Schwab was free to grow without persecution where Flat Fee MLS Brokers were taken out back and tarred and feathered.  Sellers were told by local brokers (and still are as of this writing), you can’t List in the MLS for a Flat Fee; that’s illegal.  Sellers were told by traditional Realtors® (and still are as of this writing) if you list with a flat fee firm, we won’t show your listings.  Perplexed sellers asked….Why?  We are still offering you a 3±% commission?  Traditional Realtors® rarely have a response.  However, Realtors® did not count on one major change; Realtor.Com.  Realtor.Com empowered buyers to begin telling Realtors® what they wanted to see.  Realtors® were no longer picking the houses.  This was the gateway that opened for Flat Fee MLS Listings.

The different type of regulatory environment made Flat Fee MLS a more local and regional industry.  In the late 1990s, one firm, Homebytes, actually acquired 50 state licenses and operated in 40+ markets but due to poor management they ceased operatations in under two years.  Today the only national firms are referral firms that farm out work to local and regional brokers.  Four to five regional brokers exist and two brokers cover both the east and west coast with many gaps in service in between.

To be continued…..as more changes occur.

By FFMLSM Staff Writer:
MLS stands for Multiple Listing Service; a database of homes that Realtors^® use to share their listings with other Realtors^®.  In the traditional real estate model with a high 6% commission, the Listing (the Seller’s) Brokerage usually splits its commission 50:50 with the Selling (the Buyer’s) Brokerage each earning 3%.  With a Flat Fee MLS Listing, the listing broker works for a flat fee.  However, today Flat Fee MLS is far more than a Flat Fee Listing of days past.  Today Flat Fee MLS is also à la carte services.

 The traditional brokerage industry prefers to refer to Flat Fee MLS as limited service but it’s far from limited.  What it really is, is consumer choice.  Many flat fee brokers offer all of the services that traditional brokers offer but in a menu format where sellers can pick the services that they want and pass on those they don’t want.  The majority just want MLS marketing and pass on transaction management but a growing number are asking their broker to negotiate and brokers are catering to that demand with a range of programs from a flat fee of a few hundred dollars to ¼%, ½%, ¾% or greater. 

 Who is purchasing Flat Fee MLS services?  The client base seems to be broad.  It seems to be a mix.  Some are sharp educated consumers.  Some are frugal value minded consumers.  Others just want control of their listing and the price is not necessarily the factor.

For Sale By Owner (FSBO) sellers also flock to it as an alternative for costly commissions while still getting the benefit of maximum exposure on MLS and Realtor.com.  The one thing that stands out is the growth in market share.  In 2000, less than 1/10th of 1% of the people used a Flat Fee Broker.  Today it’s about 8%.

By FFMLSM Staff Writer:

Flat Fee MLS Listing - In January of 2004 a savvy group of brokers had a novel concept.  At the time, IP based searching was in its infancy and Texas Broker Jack McLemore (WhyMLS.com) noticed that national advertisers had an advantage in Pay Per Click advertising (PPC) that local IP based advertising could not compete with.  Shortly thereafter he teamed up with Schaunon Winter (BrokerDirectMLSCo.com), and Derek Eisenberg (MultipleListingSystem.com) to form the first cooperative advertising group to market Flat Fee MLS listings on Google, Yahoo and Microsoft.  Soon after, Jeff Kermath (AmeriSellIt.com) and Richard Webber (HomeworksRE.com) joined as partners followed by over 20 affiliates in over 42 states.

 Coops have been around for years.  They are found in small pharmacies and hardware stores that want to compete with the big chains but they are somewhat new to PPC advertising.  Through Broker Direct’s cooperative efforts, an affiliate of Broker Direct is usually in the top two sponsored link positions at any given time for all key flat fee mls list advertising terms.

The Broker Direct Group, LLC currently operates several websites including AmeriOwner.com, ForSaleByOwnerMart.com, ListByOwnerOnMLS.com, ListFlatFeeMLS.com, and SaleByOwnerAmerica.com.

The cost of flat fee MLS listings in many urban markets has dropped to a few hundred dollars, and now you may even be able to get an mls listing for free! One of the leading discount brokers for real estate buyers, BuysideRealty, has changed its name and begun offering mls listings in 20 states today with 17 more coming soon.

The question that I would ask, is can a service, effectively compete with a paid service that is perceived to be free, especially when it involves the incredible risk of being the one of the largest financial transactions of your life?

The American Real Estate Broker Alliance, formed in 2006, is a new trade association representing an alliance of flat-fee real estate brokers who are offering a variety of non-traditional real estate services such as flat fee MLS listings and other fee for service brokerage options. Many of the charter members are already listed in our directory, and we will be reviewing the others for inclusion as time permits.

One of the things I most like about blogs is the fact that you can comment on them. Unfortunately, for the past couple months I have had to disable comments due to the time constraints of dealing with large volumes of spam. However, I am experimenting with some new software, and my hope is that this will allow real people to get back to the business of discussing real estate

According to the best-selling authors of Freakonomics, the answer is a resounding Yes. In a recent New York Times article, they support the much debated theory that real estate agents are headed for the same fate as stock brokers and travel agents. In this scenario, only a handful will survive, and most people will turn to discount brokers, flat-fee brokers, and fee-for-service agents.

Despite this ominous prediction, and their scathing review of agent behavior in their book, one might expect them to express disdain for this profession. However, in an interesting twist, they make the case that the public should feel sorry for real estate agents. Agents appear to be caught in the confluence of powerful economic currents, that are now being disrupted by the explosion of Real Estate information on the Internet.