I’m sad to report bad news in the flat fee MLS listing business. Recently, a large flat fee MLS referral company has created a new way to select the flat fee brokers who will list properties for flat fee sellers.
This system, which I will call the low bidder broker system, charges the seller a fixed, flat rate for the listing, the same as before. Then, when a customer orders, the listing is put up for bid in a back end system not visible to the seller. Flat fee brokers are notified, and they bid in a “how low can you go” bidding system. The broker that offers to list for the lowest amount receives the seller referral. The broker then contacts the seller, gets the property information and enters it into Multiple Listing Service (MLS) as the listing broker, and is then responsible for the listing. The referral company is no longer provides any support, other than telling a seller to contact the listing broker. The key point to understand is that the seller isn’t paying any less for the listing, the referral company is just making a greater profit and the broker doing the work is earning less. Unfortunately, there have already been reports that the low bids are as little as $55 per listing. At rates anywhere near that, a broker will lose money—see below for more detail.
This is the worst thing that has ever happened to the Flat Fee MLS brokerage industry. You probably have heard of the referral company who has created this system, but I am not going to tell their name. They are a big, national name with a fancy website and they are very proud of their trademarked website name. I don’t believe in criticizing competitors, but I will criticize bad ideas and behavior when I see it. This is a bad idea for everyone.
The lowest bidder broker system is bad for consumers because it will attract the worst kind of broker, in my opinion. Brokers who are willing to take listings as “loss leaders,” as the referral company has suggested, so they can make money off the listing in other ways. I believe consumers will get a broker who is interested in only two things, as a way to break even or profit on a listing:
- Use the listings to attract buyers, so the broker can earn buyer agent commissions, or
- Hard sell the seller on “upgrading” their listing to a more expensive plan.
Perhaps an even bigger problem is service quality in general—I don’t think these brokers will answer their phone, the other activities where they make money-buyers, upselling, etc. will require most of their time. Even if the low bidder broker had the resources to spend to answer the phone (and they won’t, see below), there is no upside or benefit for the broker to satisfy the seller.
The low bidder broker system is bad for brokers because the brokers who accept this business will either have to “hidden fee” or “upsell” their customers to break even on these listings, or use the listings as a way to get buyers, and buyer agent commissions. Sellers will dislike either of those solutions, and will not have a good flat fee MLS listing experience. Unsatisfied sellers don’t refer others, so the broker will become even more reliant on referrals to stay in business. The other alternative is for the broker to simply work these listings, but at the rates they are being paid, I have done the math—it doesn’t work. A broker might work until they are burned out, then realize they could make the same amount of money managing a fast food restaurant. There have been a good number of flat fee brokers who haven’t survived even when being paid four times the amount the low bidder listings are currently paying.
The low bidder broker system is bad for the Flat Fee MLS brokerage community. Flat Fee MLS Listings have been growing rapidly because the service is a great value. Sellers have a good experience selling their home and tell others, and more and more people become aware of the flat fee MLS option. If service quality goes down, and people have bad experiences with upselling, buyers swiped by agents, and more, the good press and growth of flat fee MLS will go away.
I am proud that our company is not a part of low bidder broker systems. It could be good for us because we answer our phone and give sellers an excellent experience when the low bidder brokers we compete against do not. But it could also drive the image of the flat fee brokerage community off a cliff, and we will pay a price for that. I hope this system is discontinued quickly, for everyone’s sake.