No Matter How You Slice It, Selling Your Home Is Stressful

I would like to tell you I have some secret for eliminating stress when selling your home, but I don’t. There is just no getting around it—selling your home is stressful. And the worst part is, the stress is spread over weeks (or months). It lingers. There is no telling the damage it does to your health.

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What makes the stress worse? The stories we tell ourselves as we wait for an offer or wait for the transaction to close. Our imagination takes over and exacerbates the situation. If we do not get an offer within four hours of our listing we think, “We will never get a single offer.” If the inspector finds something wrong in our home we think, “It is going to fall out of escrow and we will have to start over.” I do not know why it is, but assuming the worst seems like the natural thing to do when you sell your home.

Getting lots of offers does not necessarily eliminate the stress, you just get a different kind. When we went to sell our home recently, we had two parties make offers, and both really, really wanted our home. One is a middle-aged single man and the other is young couple with a one year old. At the end of the day we knew we were going to be breaking someone’s heart, which broke our heart just thinking about it. It kept us up at night.

This is just the beginning. The “Sale” stress is immediately followed by the “Move” stress. Then there is the stress of changing all of your personal contact information. Everyone who mails you a letter needs to know you are moving. Then comes canceling the utilities and starting up the new utilities. The only bright side is the 10% off coupon you are bound to receive from Home Depot.

Finally, when you think it is over, here comes the “Reality” stress of knowing your life will never be the same. You experience the emotional weight of leaving all those (hopefully) wonderful memories behind, with no new memories yet to comfort you. It maybe an exciting new beginning, but it is invariably a sad ending. I tell myself it is all just part of the journey.

These are the things no one tells you when you get ready to sell your home. They do not tell you because it would not do you any good—you cannot prepare yourself for it. You just have to ride it out. It helps if you can locate a nice Cabernet.

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 Get Buyer’s Agents To Work For YOU When You Sell Your Home

Of all the things that drive me crazy about the real estate industry, probably the most frustrating is the assumption that the seller pays for the buyer’s agent. In what other business are you expected to compensate your adversary’s advocate?

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I suppose this custom sprang out of the idea that sellers are flush with cash right after a home sale while buyers are cash poor, having had to scrape together every last penny just for the down payment on a grossly overpriced home. And theoretically, the buyer is paying for the commission since it comes out of the proceeds of the sale, which they are financing. Of course this logic breaks down on a short sale in which the seller has to dig into their savings to pay for the buyer’s agent.

Nevertheless, it got me thinking. If I have pay for the buyer’s agent, they should work for, and be loyal to, me. Now, an agent’s fiduciary duty would seem to imply that their true allegiance is to their principle, in this case, the buyer. But, what I have come to learn after trying to sell my own home is that the only thing agents are more loyal to than their principle is their commission. They are completely committed to doing what is in the best interest of their principle when they are getting “full” commission. When something threatens that commission their allegiance tends to wane.

So, I have come up with an incredibly simple way to get the buyer’s agent more interested in your goals than their buyer’s, and the best part is, it won’t cost you a cent. Here is how it works. Suppose you decide you are going to offer the buyer’s agent 2.5% commission. (Why you would do that is beyond me since with the slightest bit of negotiating, you could offer 1.5% and most agents would [reluctantly] accept it—especially in a seller’s market.) Instead of offering a straight 2.5% commission, break it into two parts. Part one is a base commission of 1.25%. The other part is a bonus commission of 1.25% that only pays off on sales at or above the listing price for the home.

With this technique, the buyer’s agent makes 1.25% commission for an offer under the asking price and 2.5% commission for an offer at or above the asking price. They are now incentivized to convince their buyer to make a full price offer, even if it is not warranted. Talk about an ethical dilemma. It may be, but it is not my ethical dilemma. I didn’t make these (crazy) rules, I am just using them to my advantage. Hey, if the buyer truly wants an agent 100% committed to them they can cut them a check directly. It is never going to happen.

So long as buyers continue to believe that the agent that works for them is free, I will continue trying to incentivize that agent to work in my best interest. What can I say? It does not make sense. I doesn’t have to—it’s real estate.

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.

Is This The Beginning Of The End Of Real Estate Agents?

There is a new real estate service called Allre that, according to media reports, lets you buy and sell you home online without a real estate agent. Will this one company put an end to the real estate agent? Not anytime soon.

AllreBut that does not mean this idea is not a shot across the bow of the real estate industry. The way that Allre is conceived, it is nothing more than an advanced-technology FSBO (For Sale By Owner) service that lets you conduct the entire transaction online (without the aid of an agent). Twenty years from now, when the millennials are doing most of the buying and selling of homes, I predict most home sales will be FSBO. Millennials live online and expect everything of importance to occur online. But until then, the world of boomers has spoken loud and clear: we hate the thought of selling our own home.

Without finding some way of partnering with, or leveraging a relationship with, services like Trulia and Zillow, who own most of the buyer eyeballs, Allre will be relegated to an inconsequential service in the near term. But that does not mean that they have not hit on something important.

With Allre, the entire transaction takes place online, including loan approval, title, escrow, etc. This use of technology to make the transaction seamless reduces—but does not eliminate—the need for real estate agents. And that is how it begins. Over time, buyers and sellers will come to realize they need agents less and less to buy and sell a home. And they sure as heck will not want to pay them thousands or tens of thousands of dollars for their reduced roll. This will not happen over night, but it is inevitable. Technology will slowly erode the importance of the real estate agents and their commissions. Trying to maintain the status quo is nothing morning than milking a cash cow. Eventually the cow runs out of milk.

What will real estate services of the future look like? I predict there will be two main services. There will be showing services—that let buyers into the home to see it—and there will be transaction management services, that make sure the transaction proceeds smoothly and that neither side gets hurt.

While Allre certainly will not have a meaningful impact on the real estate industry in the short term, it does serve as a pretty good crystal ball for what it will look like in the long term. There were a lot of search engines before Google and there were a lot of social sites before Facebook. The tipping point in the real estate industry is coming. Get ready.

 

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.

Should Real Estate Agents Make More Than Engineers?

It depends who you ask: a real estate agent or an engineer. Perhaps a more objective questions is, do real estate agents make more money than engineers? Well, let’s do some math.

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Let’s pick a nice ordinary place like Atlanta, GA. In fact, lets get more specific and pick a particular zip code in Atlanta: 30331. This will make for a good example because it is a fairly low cost area for homes.

According to the National Association of Realtors (NAR), real estate agents have a median experience of 13 years. So, we will compare them to engineers with approximately 13 years of experience. According to Salary.com, an Electrical Engineer 5 (46% of which have over 15 years of experience) earn a median income of $113,570 in the zip code 30331. (NOTE: I chose electrical engineers because they are amongst the highest paid of all the engineering disciplines.) Assuming a 2,000 hour work year, that equates to approximately $57/hour wages.

Now, let’s see what a realtor makes in Atlanta, 30331. According to City Data, the median home price in 30331 is $120,000. I will assume the standard 6% commission (3% for the buyer side and 3% for the seller side) for this property using a full service real estate agent. I know there are discount brokers out there and some agents will take less than 3%, but rarely for such inexpensive homes. Percentage discounts are usually for much more expensive homes. I do not think the 6% assumption here is unrealistic.

Continuing, 3% (for each agent) of $120,000 is $3,600. What percentage of that $3,600 does the agent get to keep? It depends. Some agents pay a transaction fee and keep the whole thing. Some pay a monthly fee to the broker and split the commission. To be conservative, let’s assume the agent keeps two thirds of the commission and the broker gets one third. Now, we have just one last calculation to make.

How many hours does a real estate agent spend servicing their client, on average, from the start of the contract until the home closes? A 2002 survey by the California Association of Realtors (CAR) found that the time required to serve sellers is about 20 hours. But, I will give agents the benefit of the doubt and assume a sale, takes on average, 40 hours of their time.

I am sure you can talk to a real estate agent that swears they spend more than 40 hour per client on average, but why is that? Is it because their service goes above and beyond, or is it because they are disorganized, or is it because they consistently work with unmotivated buyers and sellers? My feeling is, that if a real estate agent is consistently spending more than 40 hours on a transaction, with today’s technology, they are doing something wrong.

If we go along with the 40 hour number, we come up with an hourly rate for a real estate agent of $60/hour, which is about 5% more per hour than an electrical engineer earns with equivalent experience in Atlanta.

Of course were I to choose a more expensive area code, the comparison difference would be much more dramatic. Let’s choose Irvine, CA 92612, where home prices are much higher than those in Atlanta. An Electrical Engineer 5 in 92612 makes $64/hour. The median home price in 92612 is $625,000. Assuming a 5% total commission (2.5% for the buyer side and 2.5% for the seller side) and the same agent/broker split, we come up with an hourly rate for the real estate agent in Irvine of $260/hour or a whopping 400% more than the engineer.

Agents will be quick to point out that they have expenses which engineers do not, which is true. But, being self employed, they also have tax advantages the engineer employees do not. And there is one expense agents do not have, at least not by necessity, that engineers do have: college tuition, that can easily exceed $60,000 for four years at even a state school. And that does not take into account the cost of an advanced degree (over 50% of Electrical Engineer 5 have advanced degrees).

Agents will also point out that unlike engineers, who collect their hourly salary for all 40 hours, agents have to spend some of their time trolling for new clients. Once again that is true, but irrelevant for this calculation, which compares engineering productive hours to real estate agent productive hours. And besides, it is the agent who has chosen to be a self employed entrepreneur with all its benefits (e.g., set your own hours) and determents (i.e., having to drum up new business).

The purpose of this analysis is to put into perspective that, from a productive hourly standpoint, real estate agents make a really good living, even if they only sell a few homes, and even if those homes are in Atlanta, GA. So, the next time you try to negotiate commission with a real estate agent and they claim that just cannot do it for a penny less, tell them they should become an engineer.

If you need help negotiating your commission with a real estate agent, visit ReaListing.

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.