WHERE DID ALL THESE PEOPLE COME FROM?

Very few people realize how many agents are involved in the sale of their home.  Here's a quick accounting -- probably the only one you'll see.

In most transactions there are 3 or 4.  The listing agent and maybe a selling agent in the same office and their broker.  OR  The listing agent and broker plus the selling agent and broker.  All agents MUST work under a broker.

Now, a new twist in the real estate industry is the concept of teams.  The broker pays the team leader more money and the team leader recruits agents under them.  Sort of like a manager.  Teams are a waste of money but they're getting popular so now we could be up to 6 fingers in the pot.

But wait, how about referral agents?  See, in addition to the 1 million +- members of the National Association of Realtors, there are untold numbers of referral agents.  They do so little work that they don't want to or can't afford to pay the annual dues so many brokers set up a separate company which is NOT a member of the Boards of Realtors and ware house these agents to refer business.  Getting crowded isn't it?

And believe it or not, at least 2 national firms pay recruiting bonuses to agent who bring in other agents anywhere in the country.  So part of your hard earned equity could be going to someone far away who will not be involved the your transaction and never see your house!  Ouch!

It's unlikely all of these people would be involved in any sale but the average is about 5.  At Help-U-Sell it can be a little as 1-3 - and we pass the savings on to our Sellers.  (Hey Sellers, we love you!)

So if you plan on selling a home in Toms River, Beachwood, Bayville, Forked River or Lanoka Harbor in Lacey, give us a call.  We ever service Waretown, Barnegat, Manahawkin and Little Egg Harbor.  Our Common Sense approach is guaranteed to save you lots of money for the same services.

609-242-0506.

Real Estate Sales Commissions Revisited

Most traditional real estate brokers – what I like to call ‘ordinary’ brokers – charge a percentage of a property’s sale price as commission.  It’s been that way for  . . . well, for as long as anyone can remember.  It’s what we do because . . . it’s just what we do.  To question it would be like questioning why we eat three meals a day or why we go to bed at night.  So, while percentage based commissions irritate real estate consumers to no end, they are rarely challenged.   Here at the Set Fee Blog, we challenge them every day.  We believe the future of real estate will be better for consumers who will pay a logical (lower) set fee to market their property.

Let’s take a breath here in the Spring of 2013 to, once again, chip away at that tired old percentage based paradigm.  Let’s take a look at why percentage based real estate commissions make no sense.*

REASON ONE:  Percentage based commissions are arbitrary

In my examples I am using 5%.  But why?  What does 5% of the sale price have to do with what it takes to get the property sold?  What does it have to do with effective representation of the seller’s interest and the effectiveness of processing the sale?  Nothing.  It’s just a number I pulled out of the air, remember?  And that’s how ordinary brokers set their commission rates:  they usually just pull them out of air.  There is no connection between the fee charged and the level of effort and resources it will take to sell the property.  

From an ordinary broker’s perspective, the arbitrary percentage based commission is full of possibilities!  Because it is a percent of the sale price, the amount of dollars collected in commission goes up as more and more expensive property sells!  A typical strategy for an ordinary broker who wants to improve his/her bottom line is to target ever more expensive property . . . because 5% of $500,000 is a heck of a lot more than 5% of $300,000 . . . and, honestly?  It usually takes no more time, effort, energy ormoney to market a $500,000 home than a $300,000 home. Yea!  Let’s hear it for arbitrary commission rates!

REASON TWO:  Percentage based commissions are inequitable

Let’s assume you want to sell your $300,000 house.  It’s a nice big 4 bedroom with 2,200 square feet of living space.  You decide to list with a fictitious company, Hypothetical Realty, and agree to pay their 5% commission when the property sells.  That’s $15,000 (Gulp!).

 (Wait a minute . . . I’m having trouble catching my breath . . . I’m thinking about YOU in your $300,000 house.  If you are a typical $300,000 house homeowner, you might earn in the neighborhood of $80,000 a year.  That means YOU, the owner of this house has to work about 2 1/2 months to pay your real estate commission!  Really:  take your paychecks for January, February and half of March and give them to your real estate broker because that’s what it’s going to cost to sell your house! )

Now, when your neighbor sees the For Sale sign in your yard, he starts to thinking . . . ‘maybe this is a good time for ME to sell.’  So he calls up Hypothetical Realty, has them over for a chat and agrees to pay their 5% commission, too.  But his house is smaller: it’s just 3 bedrooms and 1,800 square feet.  Price: $240,000.  If it sells for full price, the commission will be $12,000.

Wait a minute!  You’re paying $15,000 for the same service delivered by the same company that your neighbor is paying just $12,000 for!?! WHY?? Where is the logic in that?? Are you paying $3,000 more because it will take that much more advertising to get the job done? (Hardly)  Are you paying $3,000 more for a better For Sale sign??  Oh, I know: you’re paying $3,000 more because your agent is going to work $3,000 harder, right?  WRONG!  There is absolutely no reason why you’re paying $3,000 more than your neighbor other than this:  you’ve been conditioned from the moment you had your first real estate transaction to accept without question the notion that real estate commissions should be a percentage of the sale price.

Usually it takes no more time, energy effort or money to sell a $300,000 house than a $250,000 house in the same neighborhood.  So why aren’t they paying the same thing?  I really have no explanation.  I think, next time you talk with Hypothetical Realty, you might want to ask them.

REASON THREE:  Percentage based commissions are inflexible

Ok.  You listed with Hypothetical, remember?  They are selling your $300,000 house and charging 5%.  The reason the fee is so high is that in all likelihood there will be TWO real estate companies involved in the transaction – yours (the listing company), and a different company who comes in with the buyer. Both companies will need to be paid.  And, of course, each of those companies will be represented by an agent who needs to be paid, too.   So that 5% you agreed to pay is not just one commission, it’s four:  one for the listing company, one for the listing agent, one for the selling company and one for the selling agent.  Ok, maybe there is some logic in this lofty commission stuff after all! There are a lot of people who have to get paid!

But wait:  what if your listing company finds the buyer?  What if there is no outside broker involved?  Do you still have to pay all four commissions?  Yep.  That’s what you agreed to when you signed the listing agreement.  So what does the listing broker do with the extra cash he got to keep?  Well in other industries it’s called overage or breakage . . . and it’s one of the keys to pocketability . . oops, I mean profitability.

Or, how about this sad tale: you list your home with Hypothetical on Friday and on Monday you meet the new person transferring into your company from out of state.  They hear about your house, fall in love with it and want to buy it.  You call up your agent to write it up.  Now YOU found the buyer, right?  Are you still going to have to pay all four commissions?  Yep.  That’s what you agreed to when you signed the listing agreement.

You see, there is no connection between what it takes to make the sale and what you’ll pay.  It is a completely inflexible, one-size-fits-all system that, I’m sure you agree, makes no sense.

I could go on, but I think three reasons why percentage real estate commissions make no sense is enough.  It’s important that you know that it doesn’t have to be this way.  There are alternatives out there, though they can be hard to find.  One I know and believe in is Help-U-Sell.  They charge a logical Set Fee to sell your house.  It’s just a wild guess on my part, but that $300,000 house?  The one Hypothetical was going to charge 5% or $15,000 to sell?  Help-U-Sell Theoretical Realty (a fictitious company operating in the same fictitious neighborhood) might charge something like $3,950 to sell it.  Oh, and they’d charge your neighbor with the $250,000 house the same $3,950.

Now I want to be completely clear about this.  That $3,950 is this particular Help-U-Sell office’s Set Fee.  It covers the consultation and advice you’ll be getting, the marketing of the home, the negotiation, representation and transaction processing you’d expect from any Full Service real estate broker.  

What it does not include is any commission for an outside broker or agent.  You don’t have to offer it for sale through outside agents, and in some hot markets, that might be advisable.  I mean if you can sell without paying extra people, why do it, right?  However, most sellers opt to go into the local MLS which means agreeing to pay outside brokers and agents a fee if they bring in the buyer.  So you’ll be adding their fee to your Help-U-Sell $3,950 in the event that’s how the sale is made.  How much would it be?  For your $300,000 house, you might offer between $6,000 and $9,000 to compete for an outside broker or agent’s attention, but the amount you offer is entirely up to you.  

And here’s the best part:  suppose you do want to offer your home for sale through outside brokers as well, you go into the MLS and you offer to pay an additional, say, $7,500 to an outside broker should they find the buyer . . . but then, you go to your office and, as in the example above, you find your own buyer.  What do you pay?  Just the Help-U-Sell Set Fee, $3,950.  You see, with Help-U-Sell, you pay a fee based on how your home actually sells – with or without outside broker help – not based on an arbitrary percentage based commission that was intended to compensate four different entities.

*In this Blog post, I will be using examples of percentage based commissions.  For convenience sake, I’m going to use 5% as the commission rate.  It is a number I plucked from air and is in fact a rather unusual number in today’s real estate universe:  most charge more.  It is important to remember that real estate commissions, whether percentage based or set fee, are fully negotiable between the broker and the consumer.  There is no ‘going rate,’ and each situation is (theoretically) handled differently.  Brokers set commission rates for their individual offices and if rates are negotiated, they are done so only with the broker’s approval.  Price fixing occurs when two or more brokers get together and agree to charge the same thing.  That is a highly illegal activity.  At Help-U-Sell, different offices charge different set fees for a very logical reason:  the cost of carrying a listing varies from location to location as does the number of days it takes to get a listing sold.  

Grants, loans and rebates for Sandy losses

I attended at seminar this morning with my wife, Debbie,  which was held in the Mancini Room of the Ocean County Public Library in Toms River.   It was hosted by the Ocean County Board of Realtors and sponsored by the NJ Board of Public Utilities and New Jersey Natural Gas.

There are residential and commercial programs available but most have deadlines of June 30, 2013 which  MAY be extended beyond if the new budgets allow.  Without delay, go to NJCleanEnergy.com/Sandy and.NJNG.com for further details.

Reposted with permission of James Dingman.

What Percentage Do Real Estate Agents Charge

By James Dingman on February 16, 2013

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.
Come on: you don’t pay your dentist a percentage of your net worth when you have a tooth filled, do you? Of course not! There’s no relationship between the two things! Just as there is no relationship between the percentage based commission you are paying your real estate firm and the effort it will take to market your home and process the sale.
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.

Don't let mold get you twice.

I was at a function at the Ocean County Board of Realtors yesterday and an interesting statement was made by an insurance agent and pretty much confirmed by a mortgage rep.

Lots of homeowners who suffered damage from Storm Sandy quickly replaced their sheet rock and insulation but did NOT do a mold test and get a certification when the work was done.  Here's the warning -- years into the future when the owners go to sell, the insurance carrier and new mortgage company MAY REQUIRE that a mold certification be part of the loan and insurance package.  If the certification was not completed at the time of the repair, the walls MAY have to be re-opened for certification.

Here's a classic case of "Better Safe than Sorry" -- do it now!

Storm Sandy damage will take years to recover from.

In the past two weeks my wife Debbie and I drove through Long Beach Island and Holgate then from Seaside Heights up to Mantoloking and Bay Head to view the damage.  Frankly, I was knocked on my butt.  We waited a few months to stay out of the way of the cleanup and utility crews but 110 days after the storm shows the extend of the damage and the incredible amount of time and money it will take to try to fix.  Notice I didn't say recover because perhaps some people never will.

Dozens of ocean front homes were broken in half and many more essentially destroyed although still standing.  Some of the small bungalows in Ortley Beach and Lavalette were knocked off their foundations and others just washed away.  The fight with insurance companies is just starting and will go on for months if not a year and when the dust settles, the uninsured losses will be staggering.

Good Luck Point in Bayville is as bad as the Barnegat Beach Island ocean fronts even though it is bayfront.

The days of fairly inexpensive flood insurance are gone and many people will have to raise their houses several feet.  Sadly, if they can't afford to and don't qualify for any grants they will be forced to sell....at a discount.

It will be interesting to look back 5 years from now.

The Mayor is on the line.

Can you imagine sitting home one evening nice and comfortable watching TV when the phone rings.

"Hello, this is the Mayor calling.  I just wanted to let you know that we'll be hiring about triple the people needed to run the town from now on.  They won't be very productive and your taxes will more than double.  But these are really nice people and they're friends of mine...so be a sport and go along with it, OK."

Would you say Yes?

Probably not.  But what I just presented was a snapshot of the real estate business.  There are more than a million real estate agents in the United States but a need for only about 300,000.  The rest are unproductive hangers on that brokers hire to bring in a few deals a year at most (and the productive agents wind up losing business.) The worst thing is that it is supported by a bloated commission system based on percentages - where sellers pay more and more for basically the same services as the value of their house goes up.  NUTS!

Would you tell the Mayor to raise your taxes to pay for unnecessary workers - I doubt it.  But when your agent asks you to pay percentage commissions that's exactly what they are doing.  Don't be fooled.  Be a wise consumer.  STOP PAYING PERCENTAGE BASED COMMISSIONS!!