What Is a Fee for Service in Real Estate?

How a Fee for Service Works

A fee for service agreement breaks out each of the services you might perform for a client in the course of their real estate transaction. It charges for those services individually rather than as one overall fee for all services performed. These types of arrangements are sometimes referred to as “a la carte” agreements or payments.

The details of the task being billed for are laid out within the agreement, such as how and when the service will be paid for, when it will be performed, and when the implied contract will be terminated or deemed fulfilled. You might charge a blanket fee for the task, or by the hour for your time spent performing and completing that task.

Fee for service agreements can be appropriate for non-arm’s-length transactions, according to Chuck Vander Stelt, a licensed real estate agent and broker in Valparaiso, Indiana, and founder of real estate website Quadwalls.

“These arrangements are more likely to occur when the client wants the professional expertise of a real estate agent but doesn't need full-service representation,” Vander Stelt said.

Examples of a Fee for Service in Real Estate

You might be negotiating the terms of a listing agreement with a home seller who balks at the commission, which is typically a percentage of the sales price of the property. A fee for service arrangement would waive that commission in exchange for payment for each individual task you perform to move the transaction along.

The seller might feel they only need you to show their home to prospective buyers. They feel perfectly capable of negotiating a deal once they have an interested buyer. A fee for service agreement would provide that they pay you only to show their property.

Vander Stelt cited three circumstances in which a fee for service arrangement can be useful:

• The seller is selling as a "for sale by owner" (FSBO) property and has already found a buyer, but they want a real estate agent to memorialize the transaction on the correct forms and supervise it through to closing.
• The homebuyer and the seller know each other, such as when a granddaughter wants to buy her deceased grandmother's home from the heirs who happen to be her father, an aunt, and an uncle.
• Buyers purchasing a for-sale-by-owner property may also want to enlist the assistance of a real estate agent. Some FSBO home sellers refuse to pay any real estate agent a commission. A buyer can then hire a real estate agent to act on the buyer's behalf. The buyer will simply pay the real estate agent directly.

Pros and Cons of Fees for Service

A fee for service gives homebuyers and sellers more control over the transaction and how much it will cost them. They’re paying only for specific services, and this can save them thousands of dollars. Paying a commission can take a significant bite out of a home seller’s built-up equity in their property. This type of arrangement allows them to pay for only what they need.

“The primary benefit of a fee for service arrangement with a real estate agent is cost reduction,” Vander Stelt said. “Typically, a real estate agent who only completes a limited amount of duties will charge a fee less than the agent's typical fee for a full-service listing. Consumers can save a lot of transaction costs with fee for service arrangements.”

The consequence of a fee for service arrangement is the limited services, Vander Stelt said.

“Both the real estate agent and the client need to have a crystal-clear, agreed-upon scope of work that the real estate agent will be completing,” he said. “Consumers should decide upfront whether the scope of work by the agent is sufficient to complete the task at hand.”

The Alternative to a Fee for Service Agreement

Real estate brokers and agents are most commonly compensated on a commission basis. The commission is a portion of the property’s sales price, often around 5% to 6%.

The more a property sells for, the more the broker and/or agent earns on the deal. Five percent of a $300,000 sale works out to $15,000. Five percent of a $500,000 sale increases to $25,000. The listing agent typically shares or splits this fee with the agent or brokerage that brings the buyer to the table for a successful deal. The commission is effectively subtracted from a home’s equity for sellers, and it can translate to additional closing costs or a more sizable mortgage for buyers.

A commission structure is often a more beneficial alternative for brokers and real estate agents, whereas home sellers and buyers typically fare better with a fee for service if they require only minimal assistance.