Wednesday, January 29, 2014

What to Pay Your Real Estate Broker - and How

(Once again, THIS is the single most popular post on the Set Fee Blog. Every day, dozens of people find their way onto this site searching for guidance on what to pay their REALTOR. I’ve freshened this up a bit – added a little more detail – and want to post it again. I only hope this helps some people hang on to more of their hard earned equity.)
I check my stats and other metrics for The Set Fee Blog fairly regularly. It helps me to know what’s drawing visitors and what’s not. It’s also helpful to see what search strings people are using to find me on the web.
Today, I had the following as a search string:
“What Percentage Do Real Estate Agents Charge?”
Ok, so it’s not that unusual. In fact I’ve seen it in the results for this blog before. But today it just jarred me:
What a sad, stupid and unfortunate question!

Seventy plus years of REALTOR double-talk has trained the public to expect to pay a percentage of the sale price of their house to an agent when it sells . . . and that makes no sense whatsoever.
What does a percentage of you home’s value have to do with getting it sold? Nothing!
Think about it:
Here you are in your $350,000 house. Thankfully, you are not upside down. You have roughly $60,000 in equity. So you decide to sell, and list with ABC Realty**, who charges you (and every seller with whom they work) 6%*. When your house sells (for full price), that’s a commission of $21,000!
I’ll give you a moment to catch your breath . . . before I point out that that may be 6% of the sales price, but it’s 35% of your equity!
Meanwhile, your neighbor down the street also wants to sell, but his home is smaller. It’s only worth $250,000. He also lists with ABC and agrees to pay their 6% Commission. When the house sells for full price, the homeowner is going to pay $15,000 — still high, but not nearly as high as your $21,000 commission.
Now, here’s the question of the day: What did YOU get for the extra $6,000 you paid to sell your house through ABC?
More Advertising?
More Open Houses?
A better Sign?
Oh, maybe your agent worked $6,000 harder! Yeah, right.
What you got for the extra $6,000 you paid is this:
Absolutely Nothing

In almost every case it takes no more time, effort, energy, money or marketing to sell a properly priced $350,000 house than it does a properly priced $250,000 house. There are some situations in some areas where a market niche, say, luxury homes, might take a little more time and might require additional or specialized marketing. But these situations are rare . . . and $6,000 extra dollars to sell your $350,000 house? That’s absurd.
It makes no sense today, made no sense yesterday, and will never make any sense at all.
Please don’t take this to mean that your percentage based real estate friend is a bad person.  The percentage model is so deeply ingrained in the ordinary real estate world that today’s practitioners don’t even question it.  It is all they know.  And the truth is, if they were to abandon it in favor of something that makes sense (i.e. Set Fee Pricing), their business model would collapse.  They operate in a world where so many people get a cut of the big commission you pay that changing direction in favor of something better would be impossible.
Smart Brokers – by the way, ‘Smart’ is a synonym for ‘Help-U-Sell’- Smart Brokers charge a set fee. Everyone pretty much pays the same thing no matter what the sale price is. It’s logical. The Broker works very hard to determine his or her hard costs of carrying a listing, then adds a reasonable profit to it, and . . . that’s it: the Set Fee the office charges everyone.
Here’s a little bit of scripting I actually heard in a REALTOR seminar some years ago. It’s what an agent is supposed to say when a potential seller is shocked by the high percentage based commission.
“I know it seems like a lot, Mr. & Mrs. Seller, but think about it for a moment. We’re getting 6%, yes, that’s true; but YOU’RE getting 94%! I think you’ll agree our commission is actually a bargain!”

I hope next time you need to sell, you’ll do the right thing and call a Help-U-Sell set fee broker. You’ll save a bundle (the set fee is usually thousands of dollars less than whatever percentage based commission you’re being quoted). And you’ll have the satisfaction of knowing that, finally, for the first time in your real estate life, you haven’t been taken to the cleaners!
*Commissions, whether set fee or percentage based, are always negotiable. They are not set by law or REALTOR rule. They are set individually by office Brokers. Price fixing occurs when different Brokers get together and agree to charge the same thing. That’s highly illegal. Different Help-U-Sell offices charge different Set Fees, because the carrying costs of marketing a listing vary from market to market, as do the number of days it takes a properly priced listing to sell.
**The “ÄBC Realty” referred to in this blog is fictitious and is used only for illustrative purposes. Any resemblance between it and any other “ABC Realty”, is purely coincidental.

Tuesday, January 21, 2014

Location, Location, Location - Nope, Try Again.

A few days ago Realty Times published an article that challenges the traditional  'ism" that location is the most important factor in real estate.  If you remember the Guns and Butter graph from Samualson's Econonics textbook, then think of this:  When PRICE meets EXPOSURE on the graph the house will sell!  But what about location??  Well, location  - along with condition, current market, uniqueness and other factors are COMPONENTS of price.  An overpriced home in a great location will not sell but if just a little over priced it should attract market offers.  If the price is too high the home will be ignored no matter where it is.  Once a fair PRICE is determined we have to address EXPOSURE.  Now get this - entering the property in the local MLS(s) is the ONLY exposure needed!  What you say!  How about print and internet ads?

Well, additional ads will not determine IF a home will sell (Price and Exposure will, remember) but they can help determine WHO will sell it.  A broker will spend additional ad dollars to 1.) "double-end" the deal (of course if it's sold in-house the broker makes the same but the listing agent splits with the selling agent).  They also advertise to 2.) keep the seller happy, 3.) attract new listings and 4.) to recruit.  And brokers love when agents advertise their own listings because the brokers information must be in the ads per regulation.  So as agents come and go the brokers brand continues to win.  Think of putting an item on E-bay.  It is exposed to a vast audience which determines if it has value.  If it does, it sells.  If not the item becomes like an expired listing.  However in real estate we want to sell our own listings so that's where the additional advertising come in.

With the Help-U-Sell system we advertise as a duty to the seller because the seller pays less.  Help-U-Sell is CONSUMER oriented.

In my next post I'll discuss a pricing strategy called a modified "Dutch Auction".

If you are buying or selling in Forked River, Lanoka Harbor (Lacey Township), Bayville, Manahawkin ofr anywhere is Ocean County give me a call.  609-242-0506




















I Can't Believe This Is Happening!

I have to say that sometimes this real estate industry baffles me.  For the past 2 days I have been taking continuing education classes and yesterday was the Code of Ethics all day.  Taking from my last post, I asked everyone in the room if they could do what I ask every month -- to write down what sellers get EXTRA for the EXTRA money they pay as the value of a home increases.  Of course, no one - including the instructor - could.  If the Code of Ethics calls for fair treatment and disclosure of facts, why do 95% of the residential agents charge percentage commissions?  And why do regulators and legislators do NOTHING?

Why do agents take money from their sellers without disclosure and accounting and then go on social media and quote scripture and post their beliefs?  Hypocrisy!   I'm all for community service and charity but does it make sense that the industry touts projects like Children's Miracle Network and Toys for Tots when they could just take the over charge from a couple of closed listings to handle these donations?  Isn't this using the unfortunate circumstances of others to feed their own greed?

Over the past 35 years or so the real estate industry has turned it's back on the consumer to keep agents and brokers happy.  It's a national disgrace to allow it so I'll be raising a stink in all media circles.  I know most of you will not agree but please don't come back in a rant.  Just answer my monthly question and make the commissions paid equal to the value of services received.