Two incidents last week combined to create the inspiration for
this week’s column. The first was an e-mail from a stranger, the
second was a discussion with a dinner guest at my home.
Two incidents last week combined to create the inspiration for this week’s column. The first was an e-mail from a stranger, the second was a discussion with a dinner guest at my home.
The e-mail arrived in my already over-burdened inbox (Hey! I’m getting a bunch of money from Nigeria soon.) A family selling a property decided to go with a discount brokerage. Their property is not on the MLS (multiple listing service), so they e-mailed agents on their own announcing its availability.
Their desire to maximize the profitability of a property is certainly understandable, but this seller might be going about it the wrong way. The best way to ensure a good sales price is to increase the visibility of the offering. The more potential buyers viewing the property, the more likely an offer (or even two!) will appear on the table. About 80 percent of all buyers (according to the National Association of Realtors) begin their real estate search on-line. By not showcasing the property on the MLS, which automatically uploads to the Internet, the buyers have done themselves a disservice.
Secondly, the buyers are personally seeking the assistance of individual agents. However, they have already chosen a competing brokerage to represent their listing. In addition, they essentially are undercutting the industry, which they are now soliciting. They are opting to forgo the traditional system and then attempting to woo the individual members of that system. And, unfortunately, they don’t understand even the basics of what information those members need to determine if they have a buyer who matches the property.
The second incident was at a session of Rotary’s “Guess Who’s Coming to Dinner?” event. This is a cool concept: You sign up to participate; once a month, there’s a dinner party; one time you host, one time you go to someone’s house with a salad, one time you go to someone’s house with a dessert. No one except the organizer knows who is going to each party. Combinations of couples one normally wouldn’t think to bring together create fabulous dinners and memorable times.
We happened to be hosting, and Tim made a fabulous monkfish/shrimp pot pie with a dill biscuit topping. (Whoa, doggies…it was delicious!) One couple brought a fabulous salad with nuts, pear and blue cheese, and another a moist and sumptuous cake. (Okay, so I’m drooling on the keyboard now.) Anyway, the conversation got around to the real estate market. Trust me, I didn’t bring it up.
The discussion got around to real estate services and fees. One guest believes that real estate fees are a necessary part of every real estate transaction, and one doesn’t. It’s worth considering, isn’t it?
Let’s look at how real estate fees break down. First of all, the seller signs with a brokerage for a set commission. (We’ll use six percent for this example.) The brokerage usually puts the property on the MLS and offers half the fee to the brokerage that brings the buyer to the table. So now we’re looking at three percent and three percent.
Imagine you’re the agent working with the buyers. You will make sure that buyer is pre-approved for the mortgage. You’ll show them every property available in their price range, and perhaps even beat the bushes a bit to find properties not yet listed. You’ll draw up the contracts for the purchase, arrange for inspections, negotiate the details of repairs to be done to the property, and oversee all the details to make sure everything goes smoothly.
Then you get the 3 percent? Not so fast. You pay a cut to your brokerage, which provides you with an office, staff, and some marketing. And you’re self-employed, so you pay self-employment taxes in addition to income taxes. You pay your own vacation time, sick time and health benefits. You pay for all your own tools such as lockboxes and lockbox keys. You pay for your own errors and omissions insurance, membership fees, and continuing education.
The listing agent? All the above costs plus advertising of the property, sign installation and removal, etc. Whew!
A discount brokerage needs to pay the same costs, so they must do a larger volume because they have less profit per deal. They cannot afford to devote the same amount of time to each deal or each client or they will not stay in business at all.
Discount brokerages are a good thing. These brokerages increase competition, an integral part of our total market economy. They provide more options for sellers. But no one gets something for nothing. When you go to buy a car, you can’t get a Cadillac for the price of a Hyundai. Not everyone wants a Cadillac, but when you want leather seats, a great stereo system, increased safety features, a smoother ride, chances are you’ll have to pay more.
In today’s real estate market, when there are lots of homes in every price category, do you think agents are more likely to show the properties with full commissions or those with reduced commissions? When you sell your largest financial investment, it’s time to make money, not save money. Weigh your options carefully. Make the best decision for yourself and your circumstances.
And be kind to your Realtor!
