A Open Letter To All Real Estate Agents

Dear Agent:

Let me start by saying that I like you, I need you and I respect the work that you do. I have no interest in selling my home by myself and I look to a professional like you to help me out with that. But I have a problem, and it is a touchy subject. It is something all of us home sellers think but are too afraid to say out loud. But I have summoned up the courage to tell you and I am going to tell you now. You make too much money for the service you provide.

I know you are highly trained, so are we. I know you work hard, so do we. And we work especially hard for our home equity, much harder than you do. We save for years just to get a down payment on a grossly overpriced home. Then we make mortgage payments for years, that as you know, are mostly interest at first. And if we choose to sell or have to sell before we pay it off, it seems to me that the proportion of our equity you receive is not commensurate with the work you have done, relative to us.

Let me tell you how devastating your traditional commission structure is to our well-being. When you sell our home with your percentage-based commission structure, you may make 6%, but you take much more. As a result of recent economic events, many of us are stuck with miniscule equity in our home. If we bought a home for $375,000 several years ago, we may be lucky to sell it for $400,000 today. So, you may be making 6% of the sale price, but you are taking 100% of our equity. Equity we need to buy our next home, or even to afford a down payment on a rental. Your commission formula can set us back years in our lives.

Now, if the job of real estate agent had been getting harder or more expensive over time I might be able to understand the fees you charge, but it hasn’t.  In fact, just the opposite has happened. Your job has been getting easier and cheaper as you have held steady to your incredibly unfair compensation.

To put things in perspective, since the launch of the personal computer revolution in the mid 80s, the cost of computers has dropped by 80% while computing power has risen by a factor of 1000. In that time period, personal productivity has skyrocketed as a result of this new technology in all industries, including yours. Can you even contemplate what it would have taken thirty years ago to advertise a listing to the entire planet? Today you can do it for free in minutes on a myriad of websites, including your own.

But in that same time period, as your expenses have dwindled and your productivity has increased, what has happened to your fees to sell a home? They have tripled, rising at the same rate as housing prices. Perhaps you can understand my frustration.

I do not blame you for your fees. If I were a real estate agent I would do what you do: defend them as if my livelihood depended on it. I would attend the same seminars you do on how to overcome commission objections. Most sellers are terrible negotiators and you confidently use that to your advantage. No, I do not blame you for your inequitable fees. I blame myself.

I have been too lazy and too intimidated by this large, infrequent financial transaction to seek a more beneficial outcome for myself. As a result, I have abdicated my control in this matter and relinquished it to you. My penalty for doing so is that I have had to live with your commission rules. But that time is over.

I am taking back control. I am committed to being less intimidated, more educated, more savvy and playing a more proactive role in the sale of my home. I still intend to use your services, just as I choose to use those of the painter and the plumber. I could paint my house or fix the toilet, but I choose not to. Likewise, I could sell my own home, but I would rather have the help of a professional. And just as the plumber and painter are willing to work for fair compensation, unrelated to my home’s price, you and I will work together to find a more equitable compensation for both of us. One that will still allow you to make you a terrific living as a real estate agent, while leaving my equity alone.

There is a new day dawning in the residential real estate industry. Change is coming, and it does not depend on you or any new technology. It depends on me and my changing behavior. And as I change my behavior, you too will have to adapt. You will have no other choice. There will soon come a time when you have to choose between a listing that is more fair for the seller or no listing at all. I feel confident you will choose wisely.

Regards,

Home Seller

 

To download a PDF version of this letter click here.
To learn how ReaListing is changing the way homes are bought and sold, click here.

 

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

The Only Effective Way to Negotiate Real Estate Commission

How do you ay less than the “standard” commission to a full service real estate agent and still get them to sell your home? Pre-negotiate.

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Under normal circumstances, a listing agent’s fee is not discussed until the end of the listing presentation. At that time, the agent informs you, the seller, of their commission schedule and it is incumbent upon you to try and negotiate down from there. Good luck. Most sellers are poor negotiators and most real estate agents are very good at defending their commission.

To make matters worse, most sellers use an agent they already know, or a referral from someone they know. Try negotiating with an agent that is a friend or family member. But wait, there are even more challenges.

If you have followed the real estate agent’s standard operating procedure, they will conduct their listing presentation in your home, and, as part of their presentation, they will assemble for you a Competitive Market Analysis (CMA), which is used to help determine the asking price for your home. So, they are in you home and have already done work for you.  The sense of obligation you feel toward the agent for work already done is not an accident. They are at your home for one reason: to get the listing at full commission. If you follow the agent’s standard operating procedure, you are pretty much sunk, as far as reducing their commission.

For better or worse, in the world of real estate sales commission, the person who speaks first, wins. It takes a lot of work to move someone off their initial declaration. That is why, if you, as a seller, want to get a reduced commission, the time to do it is not at the listing presentation, but before the listing presentation. You must make your commission intentions known up front. You must make their conducting a listing presentation predicated on their agreeing to your commission. In other words, they only get to do a listing presentation to sell your home IF they agree to your commission. Otherwise, they are not even allowed in your home. Why waste each other’s time?  They do not have to waste time doing a free CMA and you do not have to waste time trying to figure out how to get them out of your home.

Pre-negotiate or pay too much—that is the lesson. To learn how ReaListing helps you painlessly pre-negotiate lower than standard sales commission to full service real estate agents, click here.

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

The Biggest Mistake You Can Make When Using a Competitive Market Analysis (CMA)

As most home sellers know, when working with a real estate agent to sell their home, one of the first things the agent does is to assemble a Competitive Market Analysis (CMA) for the home seller. The CMA includes the prices of recently sold homes in the area, prices of currently for-sale homes in the area, and maybe even prices of homes that failed to sell in the neighborhood. The idea is for the agent and seller to use this information to come up with an asking price for the Sellers’s home, but that may not be such a good idea.

One of the biggest challenges, when it comes to any financial transaction, is that we as human beings bring our own biases and blind spots into the deal. What is the seller’s bias when pricing their home? They tend to think more highly of their home than home buyers, and therefore want to price it too high. And what is the agent’s bias in pricing a home? They do not get paid unless and until the home sells, so they want to price it for a quick sale. There is even evidence-based research from the Nation Bureau of Economics Research to support this behavior. Quoting from the report, “Because real estate agents receive only a small share of the incremental profit when a house sells for a higher value, there is an incentive for them to convince their clients to sell their houses too cheaply and too quickly.”

If you really want to know what your home will fetch, without bias, I suggest you pay for a professional appraisal. Unlike a price determined by the agent and seller, the number an appraiser comes up with actually has contract implications: the bank lending the money to the buyer is going to use the amount from an appraiser to fund the loan. You will have a hard time getting much more than that unless you can get a bidding war for you home between cash buyers.

Real estate agents may tell you that they are experienced home pricers, and that an expert appraisal is not needed. But real estate agents are not professionally trained on how to establish value for the unique aspects of a home. For instance, my home is in excellent condition in a desirable neighborhood but comes with a unique blemish: we live under a high voltage power tower. There are many families, especially with small children, that would never consider buying my home. As such, my home must be discounted from the other surrounding homes, but by how much? Do I want to leave that decision to an agent with “a lot of experience,” or do I want to entrust that to a professional who has been trained to accurately estimate the degree of the discount? Am I willing to pay a few hundred dollars for an appraisal to avoid making a several thousand dollar mistake in pricing my home? You bet.

It is true that apprising is not an exact science. Therefore, selling a home for one or two percent above the appraised value should not be a problem. That would be equivalent to selling a home that appraised at $200,000 for $204,000. Probably doable, even from the bank’s perspective. But selling a home for ten percent above appraised value is a different matter. That would be like selling a $200,000 home for $220,000. Even if you could get a buyer to offer that much, it will probably fall out of escrow, unless you can find a cash buyer.

So, what should a CMA be used for, especially if you already paid for an appraisal? The real benefit of the CMA is to establish a pricing strategy for your home. What do I mean by pricing strategy? Given what your home is worth (from the appraisal), where should the asking price be set to maximize your chances of getting it? Pricing strategy takes things like market activity and momentum into account when determining asking price. Strategies change when markets change.

For instance, in a seller’s market where quick sales and bidding wars above asking price are common, the right pricing strategy might be to price the home a little lower than the appraised value to get the most possible bidders involved. On the other hand, in a buyer’s market where home sales take awhile and almost always result in a 10% discount to asking price, the right pricing strategy might be to price the home 10% high (and be really patient). Pricing strategy is where an experienced agent will use the CMA to its full advantage for your benefit. Keep in mind, that for most home sales, your goal is to end up at the appraised value (or slightly over). Anything else is just wishful thinking.

To learn how ReaListing is changing the way homes are bought and sold, click here.

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

How to Incentivize the Hell Out of Your Real Estate Agent

Talk to any real estate agent and they will tell you how valuable they are when selling your home. They will tell you that studies show homes sold by a real estate agent sell for 12% more (love to know where that number came from) than those that don’t.

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The truth is, when it comes to selling most homes, there is actually a maximum amount the home can sell for, and it has nothing to do with what the seller wants or how good the real estate agent is. The maximum amount for most homes is determined by the lending institution that is going to be holding the note against the home. 

One or more home appraisals will be conducted by professional, impartial appraisers to come up with a value for the home, and that is the value the lender will lend against. So, to sell a home for more than that value, one of two things has to happen: either the agent has to find a buyer who is willing and able to put down a larger down payment (to make up the difference between the appraised value and the sell price), or the agent has to find an all cash buyer. Finding an all cash buyers means finding someone smart enough to amass enough cash to buy a home outright but too dumb to know its appraised value. Now, if a real estate agent can find one of those buyers, that would really demonstrate their value.

Unless your home has some unique appeal that can foster a bidding war amongst wealthy people who simply have to have it, you are not likely to sell you home for much over its appraised value. However, it is possible. And since you know going in that the best you are likely to do is sell your home at the appraised value, why not put your real estate agent to the test by putting your money where their mouth is.

Here is how it works. First, get an appraisal of your home by a professional appraiser, ideally one who specializes in your neighborhood (or even your street). Then, offer to spit (50/50 or 75/25) any amount your realtor can get you over the appraised value. Talk about an incentive. With this system in place, the real estate agent can potentially make more money on the split than the base commission. You will come out ahead because you are getting over the appraised value and the agent wins because they just bumped up their take on the sale.

This may sound crazy, but it happens all the time in the world sales. Companies are more than happy to give a bigger cut of the pie to the sales people who go over, sometimes way over, their quota. It is called an accelerated commission schedule and it would actually help combat one of the biggest problems in the real estate industry: the conflict of interest between seller and agent where the seller wants the highest price and the agent just wants to get the home sold at any price (so they can get their commission). The accelerated commission just might get a real estate agent to convince you to hold out for a higher price, if they know it is in their best interest too.

To learn how ReaListing is changing the way homes are bought and sold, click here.

 

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.