Saturday, April 18, 2009, 10:40AM

By: David Allison

WPI American Home Real Estate

Flat fee MLS (sometimes referred to as "flat rate mls" or "fixed fee mls") refers to the practice in the real estate industry of placing pertinent information about a property for sale into the database of the local Multiple Listing Service (MLS) for a set fee or dollar amount as opposed to a commission based on the sales price of the property.

In this instance, the Listing contract between the real estate broker and the property owner typically requires the broker to enter the property into the MLS and calls for the seller to pay the broker a flat fee for the service. The net effect is to make the real estate industry's standard MLS available as a marketing tool to house sellers without the necessity of the seller purchasing a package of other services from the real estate agent.

This service is typically much cheaper than using a traditional real estate listing contract. The listing fee for a "flat fee MLS" can range anywhere from $200-$500, depending on the area, while traditional brokers charge a total of 4% to 7% of the selling price of the property, that amount typically being split between two brokers involved in the transaction or two agents/brokers from the same company. However, in all cases where the property is "listed" in an MLS when using a fixed fee service, the seller must still offer a "Buyer's Agent Commission", typically 2.5% to 3% of the selling price paid to a co-operating broker who brings a buyer. However, the commission which is normally paid to "listing" broker is eliminated by payment of the flat fee. The savings can be substantial.

Variations and types of limited service
The term "flat fee MLS" is also used to describe the service and fee structure provided by real estate brokers and agents who offer real estate services on "limited service" basis rather than as part of a bundled suite of services provided in the traditional, full service model. Since the seller is paying only and specifically for a listing in the MLS, the seller often takes responsibility for the other services typically provided by a full service real estate broker and is, in many respects, selling the property as a For Sale By Owner (FSBO). Typically, with flat fee MLS the fee is paid at the time of listing the property, rather than at closing (or settlement, as it is known in some parts of the US) as is the case with traditional brokerage services.

Many fixed fee services also offer contractual terms that permit the seller to advertise as a For Sale By Owner (FSBO) seller. Therefore, if the seller finds his own buyer, even the buyer's agent commission is eliminated.

Other advantages for the seller may include the option to cancel the listing at anytime and take it elsewhere in addition to not requiring that a seller be locked into a contract for a minimum amount of time.

A potential downside of using a flat fee listing service is that, in most cases, the seller must represent himself in the transaction, or arrange for other services such as an attorney or title company to handle closing. Some companies offer "limited representation" by the real estate broker, which include basic information to help sell the property. Because of this, flat fee listings may not be the best choice for the beginner. In any case, both flat fee (limited service) and traditional full service brokers normally advise clients to seek qualified legal advice regarding their real estate transactions.

Traditionally real estate brokerage services in the United States have been delivered as part of a bundled package including such services as (i) assisting the seller in setting a list price for the property; (ii) marketing and advertising a property for sale, including listing the property in the MLS; (iii) handling buyer inquiries and scheduling and arranging showings of the property to prospective home buyers; (iv) holding "Open Houses" to allow the public to preview a property for sale; (v) handling contract preparation and negotiation on behalf of the seller; (vi) management of the real estate transaction to final settlement (or closing escrow). The fee structure for this bundled package of services in the United States and Canada has generally been to pay a commission on the gross sales price of the property of between 5-7%.

Stephen J. Dubner and Steven D. Levitt report that this typical large commission does not even benefit the average real estate agent as much as one might expect from the recent run up in housing prices because of the excessively large amount of time that the average real estate agent must spend trolling for new clients, and the relatively small percentage of their time they spend actually performing real estate services for each client.

However, the fixed fee concept existed for many years before the internet became popular. There are also fixed fee broker groups that cooperate with each other across the United States. Many FSBO websites will also locate local flat fee brokers for interested sellers. Those offerings normally include a FSBO webpage to assist in advertising the property.

In recent years, with the unbundling of services accelerated by the advent of the Internet, a number of brokerage models have developed to cater to the FSBO market by providing services on an "a la carte" basis. The widespread availability of information about properties for sale has caused downward pressure on real estate fees in the United States. For changes in the industry also read real estate trends.

A useful overview of real-estate payment practices in the United States is found in an October 2006 report by the AEI-Brookings Joint Center for Regulatory Studies. The study notes that "real estate broker commissions are strangely unrelated to either the quantity or quality of the service rendered or even to the value provided." It further concludes that "consumers would benefit most from a fee-for-service approach - combining flat fees, hourly fees, and bonuses, including percentages of extra value created."  It offers a number of examples