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Can Flat-Fee Brokerages Solve The Principal-Agent Problem?

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For no cost to a seller, Federa will place a home on its local multiple listing service at a price the seller determines. They can upload photos and enter dates on which they want it go live. And that’s it. Everything else is left up to the seller.

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Real estate brokerages need every advantage they can get to pull in top agents.

They use technology stacks, extensive in-house support for marketing and transactions, attractive splits and often spend heavily on lead generation to ensure their agents are primed to bring in commissions.

One of the more unique draws a brokerage will use is to market listing services as a free service to sellers. Federa is one such brokerage, operating in 14 states.

For no cost to a seller, Federa will place a home on its local multiple listing service, at a price the seller determines. They can upload photos and enter the dates on which they want it to go live. And that’s it. Everything else is left up to the seller.

Staging. Marketing. Showings. Contracts. Negotiation.

But wait, there’s more.

Federa is ultimately wanting the seller to choose one of its flat-fee, full-service listing options, which costs $3,000 if paid right away and $5,000 when paid at closing.

Federa agents do everything remotely and are paid 62.5 percent of the deal. They can choose to take an advance on that commission should they need it, using Federa’s enterprise relationship with Stripe. Sellers can withdraw or cancel their listings within seven days, a common contract stipulation with varying timelines around the country.

But pitching that kind of certainty to a seller can provide some comfort, especially to the type of client anxious about traditional listing agreement structures.

Sellers will receive everything a more traditional listing broker will offer, such as a CMA, chat communications marketing services, contract preparation and negotiation.

Federa has a rather cutthroat lead routing tactic.

Every agent in the company is alerted to a new lead via a proprietary app at the same time. You better be fast, because according to the company one of every eight listing leads becomes a buyer client or a full-service lead.

Federa markets its free service as better than For Sale By Owner, for example, because as an actual brokerage other agents trying to pry them away from FSBO stand down.

The company also argues that because its agents know they’re getting their pay from the flat fee, they’re more apt to be more honorable to the seller’s needs. In other words, they won’t push clients to a less than ideal offer just to get the deal closed or to reach some personally-set financial goal.

This is the principal-agent problem, a term made popular by the book “Freakonomics,” and explained by Wikipedia thusly:

“The principal–agent problem occurs when one person or entity (the ‘agent’) is able to make decisions and/or take actions on behalf of, or that impact, another person or entity (the ‘principal’). This dilemma exists in circumstances where agents are motivated to act in their own best interests, which are contrary to those of their principals, and is an example of moral hazard.”

Another play Federa is looking to make involves corporate homeowners and developers. Flat fees are easier to plan for and able to help large-scale commercial entities, such as those buying single-family homes to rent would prefer to work under a predictable fee structure. Makes sense but cracking that market is much easier said than done.

Federa was once Federated Realty. It rebranded in 2020 to reflect its expanded service offering and more tech-forward remote agent approach.

It also offers several technology products to its agents and puts that forward as a primary draw.

Agents interested in what Federa has to offer can learn more here.

Email Craig Rowe

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