Is the guy charging you the least costing you the most?
Is the guy charging you the least costing you the most?
One of the greatest things about our free market economy is competition. It drives all of us to continually deliver better services at an increasingly lower cost. This continuous drive to improve is definitely having an impact on real estate service and the options for those of you considering buying or selling is better today than it has ever been.
Several new players have entered the market with ‘improved’ models, intending to save you money on commissions. The question is, ‘Is it really saving you money?’
We recently represented a buyer on a transaction where the seller had hired one of the ‘discount’ options to represent them in a sale. What ensued was a disaster for the seller and allowed our buyer to walk into his new home with over $60,000 in equity.
Here is what went down:
First, the seller had tried to sell his home a year before, hired an agent, and had a miserable experience. The home went under contract, and then fell apart during the inspection period over some minor deferred maintenance. They pulled the home off the market, repaired every item from the inspection report over the next year, and then hired the discount option.
We have (when I checked this week) 6998 realtors in Salt Lake County alone. Just hiring someone with a real estate license does not mean they are qualified to sell your home. To get licensed it only requires a 120-hour course, passing a multiple-choice test with a 70% or better, paying a token fee to the state, and they turn you loose on society to help people sell their biggest asset. I went through a tougher training course when I sold shoes for ZCMI. Don’t assume that, because someone is licensed, that they know what they are doing.
Next, the seller got no help in pricing his home from the brokerage he hired. (I spoke with the agent at the brokerage on several occasions. He actually told me he makes so little on the transaction that it isn’t worth his time!?!) The seller turned to Zillow and recent sales in his neighborhood for pricing and accidentally priced the home $40,000 below actual market value.
First, Zillow is not accurate. You might as well take your county tax value into consideration. Unfortunately for the seller, he got what he paid for. In this case, he didn’t know the market very well and relied on unreliable sources to determine his sales price. Sadly, even comparable sales are not very accurate. Even if the home sold last week, it actually went under contract 30-45 days prior to that, in most cases. You are looking at a market that has come and gone. The best way to determine value is utilizing current supply and demand. We have an absorption rate pricing index that is the most accurate model available and most agents don’t even know what that is.
Then, the seller made possibly the biggest mistake of all. He offered $1 as compensation for the buyer’s agent. I made a call to the seller (all communication for showings had to go through the seller and not the agent … because he doesn’t get paid enough to bother with that!?!) and I asked if he would consider paying me a higher percentage if I brought him a buyer and he immediately agreed.
The seller eliminated the largest majority of buyers by cutting out the income for the person tasked with finding the buyers homes to consider. The seller was trying to save money and didn’t realize he drove the demand to almost zero. Any agent would make more money convincing their buyers to buy literally any other home on the market. They were incentivized to sell the competition, not his home. Because no other agents were interested in showing his home, he eliminated any competition to our offer, allowing us to come in at an even lower price.
After we submitted our offer (and got it accepted) for $10,000 less than asking price, we went to work with an inspection. There was very little on the list because the seller had spent a year fixing everything from the prior inspection. We used the age of the roof, furnace and AC units to reduce the price by an additional $10,000.
Because the seller lost a sale the year before due to inspections, he was nervous about keeping the sale together this time. This allowed us to negotiate an even better price on the home. Again, he got no help during the negotiation process because the agent wasn’t making enough to bother (and even though this brokerage has sold thousands of homes, they probably have never negotiated against a savvy agent on behalf of their clients)
Now, before you think I’m unscrupulous and that I’m a jerk who took advantage of this seller, please keep in mind that my fiduciary responsibility is to my client. I am tasked with looking out for my client’s best interest. The seller had his own representation who also has fiduciary responsibilities toward his client.
I know, I know. This is an extreme case where this particular seller lost a ton of money, but this doesn’t happen every time, right? Correct! Most of the time, something this extreme doesn’t happen but let’s look at the numbers.
I recently reviewed over 500 sales in the prior year of a popular discount brokerage in town and compared it with a typical full-service real estate brokerage. Did you know that on a price per square foot average, the discount brokerage sold for 3.08% less than the traditional brokerage? When a typical listing fee is approximately 3%, this company would literally have to pay you to list your home in order for you to break even! Instead of paying you though, they charge $1500 - $2500 up front depending on the price of your home. What’s worse? They didn’t sell more than half of the homes they listed. The homes expired, were pulled off the market, or canceled more than 55% of the time. So, when they canceled, did the poor sellers get their money back? Ummm, no. They lost it all. So, the people that were successful lost equity and the fee and the people that weren’t successful just lost the fee.
We want to continually improve our services and be a tremendous value to our clients. We never want to miss an opportunity to serve you based on the cost of our services so please talk to us about how we can make the task of selling your home even more affordable for you. We are here for you and we want to continue to earn the right to be your real estate resource for life. We know that with nearly 7,000 agents in Salt Lake County, you probably have a family member, a friend, or someone in the neighborhood that has a real estate license. I’m sure they are willing to offer you a ‘discount’ to hire them. Before you sign the contract, consider giving us a call to see how our new technology and our experience can improve your bottom line. Saving commission doesn’t always translate to higher net proceeds.
Rod B Moser 9/16/2019