Every so often you see e-mail postings online that provide an opportunity to look at why the world works the way it does.

The subject floating around this time concerns a flat-fee realty service that belongs to a local MLS. From various postings, it appears that the firm charges owners $495 for a given set of services, including a listing in the local MLS. In turn, if an MLS member broker sells the property, the owner then pays an additional fee equal to x percent of the sale price.

The mere existence of this firm has raised a number of comments and ideas. To paraphrase:

• "How could our professional group allow this firm to be a member of our sacred MLS."

• "Their listings won't sell quickly because other brokers won't show them."

• "Let's change the rules to exclude flat fee firms from the MLS."

• "Let's get together as a group and ban flat-fee firms."

Happily, most of those posting reject such views and understand the logical fallacies of such comments. Let's look at a few issues to see why.

Is the flat fee firm licensed?

If yes, like any other brokerage it has the right to conduct business in whatever manner it pleases, as long as such conduct is within the bounds established by the state real estate commission and all other applicable rules and regulations.

What fees are charged for services?

Real estate fees are negotiable. If a firm elects to charge differently when compared with other firms or offers a different package of services and benefits, such choices are a commercial decision.

Fee arrangements are matters between brokers and their clients. Approval from competitors is not required. Moreover, an effort to come between a broker and a broker's client may raise issues of "tortious" interference with contractual relationships.

Can't I, as a broker, just elect not to show properties listed by a discounter or flat-fee firm?

What did you tell your buyer? Did you say you would show all available homes that meet their criteria, or only homes which generate a given commission?

Ethical codes, standards of conduct, and contractual obligations with buyers all make shunning properties listed by flat fee and discount firms an imprudent option. Banning together to shun a competitor is likely to keep government lawyers busy, busy, busy -- and when the government is done, look for civil suits to follow.

"Price competition," says broker defense attorney Robert N. Bass, "is as American as apple pie. If you can sell a product for less, and market yourself properly, you will likely enjoy some measure of success. Whether a brokerage company can become successful charging only a few hundred dollars for its services is problematical. Perhaps some of these brokers are trying to lure the frustrated FSBO, who hasn't had any luck selling the home himself, but can't quite bring himself to pay a full commission to a broker. Similarly, some sellers don't want or need the full range of services traditionally provided by a listing agent.

Bass, a former administrative law judge for the Arizona Real Estate Department, offers claims-reduction counseling for brokers, defends those who wind up in court or with license complaints, and speaks before broker groups nationwide.

"How many of these types of sellers exist in a given market, and how much money can really be made working with them?" he asks.

"In the past, lower brokerage fees have usually meant lower levels of service by the listing agent. Objectively, discount brokers are competing for a relatively small share of the market.

"Over the years, we've seen many discount concepts come and go; few have thrived. It appears there will always be a market for discount brokerage services. We also know that sellers are growing ever more sophisticated about the pitfalls of the homeselling process. This would tend to move those sellers in the direction of full-service brokers. In this economic climate, one must wonder, ultimately, just how large an issue discounting really is."

Can a professional group ban flat fee firms?

Sure -- if it wants to pay millions of dollars to settle restraint-of-trade claims.

The federal government has sued numerous professional groups on the basis of anti-trust claims, and the government's winning percentage is exceptional.

For at least three decades the same questions have been asked and the answers are always the same: All brokerage firms have a right to charge what they like and package services as they prefer. The public can then look at a range of offerings and decide what it wants or does not want. That's the way it ought to be in every field, and that's the way it is in real estate.

For more articles by Peter G. Miller, please press here.

Published: June 5, 2001

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